(Bloomberg) — Stock markets staged a relief rally after US Commerce Secretary Howard Lutnick said the Trump administration may walk back some tariffs. US and European equity-index futures gained indicating the rally will continue.
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Traders are wading through a slew of news, with Beijing’s annual work report, Lutnick’s hints of a tariff compromise with Canada and Mexico, and Germany’s plan to boost defense spending all impacting markets. President Donald Trump defended his economic plans, while a regional Asian gauge rebounded. Treasuries held Tuesday’s declines and the dollar strengthened against all the Group-of-10 currencies.
Hong Kong shares outperformed after the National People’s Congress in Beijing set an economic growth target of about 5% for 2025, a third straight year it has maintained that goal. Given the broadening global uncertainty on tariffs and geopolitics, economists expect Chinese officials to add stimulus.
“There’s nothing to nitpick, just a robust growth target, and a clear intention to support the economy,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “They’re saying all the right things on employment, housing market, stock market.”
In European news, Germany said it will unlock hundreds of billions of euros for defense and infrastructure investments in a dramatic shift that upends its ironclad controls on government borrowing. The move drove the euro to a three-month high and sparked a selloff in global bond markets to bund futures to Treasuries.
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Frantic moves lashed markets all day Tuesday, as sentiment shifted quickly amid the slew of news. US stocks were particularly volatile, first plunging, then recovering, and falling anew at session’s end. While the S&P 500 closed down 1.2%, equities gained in late trading after Lutnick’s comments.
In his address to Congress, Trump acknowledged that there may be an “adjustment period” to tariffs as he defended his policies to remake the US economy. He also called for an end to a $52 billion semiconductor subsidy program and repeated the 25% tariffs for aluminum, copper and steel.
Read: Trump Warns of Tariff ‘Disturbance’ as He Touts Trade Plans
“There’ll be a little disturbance, but we’re okay with that,” he said. “It won’t be much.”
His speech comes as the latest data show economic activities slowing amid the uncertainties of a global trade war. The Aussie extended its drop and the won erased its gain after Trump spoke.
The US could announce a pathway for tariff relief on Mexican and Canadian goods covered by North America’s free trade agreement as soon as Wednesday, Lutnick told Fox Business. He added that tariffs would likely land “somewhere in the middle,” with Trump “moving with the Canadians and Mexicans, but not all the way.”
“The market seems to be pricing in the idea that the Trump administration is seeking a deal, rather than focusing on the potential inflationary impact of additional tariffs for the US,” said Tomo Kinoshita, global market strategist at Invesco Asset Management.
Meanwhile, China boosted its budget deficit to the highest in 30 years as it battles deflation, a property crash and now a trade war with the US. Policy makers also set an inflation goal of 2%, down from a longstanding 3% target. The yuan weakened slightly on the announcements.
The NPC numbers came in-line with expectations and the lack of surprises is good, said Siguo Chen, a portfolio manager at RBC BlueBay Asset Management. For 2025, as long as China doesn’t have any policy surprises, it’s “good for China market,” and the rally in stocks will hold, she said.
“The swing factor is Trump’s announcements, even for China,” she said.
Elsewhere, the Bank of Japan Deputy Governor Shinichi Uchida signaled that the benchmark interest rate remains on a gradual upward path, in remarks that may quell speculation of an early move.
On the corporate front, Blackrock Inc. led led one of the biggest acquisitions of the year in a deal that marked both the firm’s expanded reach in infrastructure and a win for Trump, who had raised concerns over control of key ports near the Panama Canal. CK Hutchinson shares jumped as much as 25% in Hong Kong on Wednesday, the most in 27 years.
In commodities, oil extended its decline and gold steadied near a record high. Bitcoin swung between gains and losses.
Key events this week:
Eurozone HCOB services PMI, PPI, Wednesday
US ADP employment, ISM services index, factory orders, Wednesday
