Trade war: Stock markets rally as Trump rows back on Fed and China threats
Global stock markets and the dollar have rallied on hopes of two significant climbdowns by the Trump administration on issues blamed for a slump in values.
Remarks by the US Treasury secretary on punitive tariffs against China lifted the mood on Wall Street initially before the president himself moved to calm market trade war worries and also end speculation he could fire the head of the country’s central bank.
The Dow Jones Industrial Average and tech-focused Nasdaq Composite both ended Tuesday trading 2.7% up, erasing losses of the previous day.
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Asian markets later followed that lead, with the Hang Seng in Hong Kong gaining 2.4%.
European indices also saw a strong opening, with the FTSE 100 up by more than 1.2%. It was led higher by Asia-focused banks HSBC and Standard Chartered.
US futures suggested Wall Street would pick up where it left off, with further strong gains expected.
The US dollar – badly hit by trade war implications in recent weeks – was at least a cent higher than a day earlier against many rival currencies including the pound.
The rally gathered steam on Tuesday evening when US Treasury secretary Scott Bessent told a private JPMorgan event that he expected a “de-escalation” in the spiralling spat with China.
It’s a fight that has seen US tariffs hit 145% and China responding with duties of 125%.
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Trump: Tariffs are making US ‘rich’
According to a transcript obtained by the Associated Press news agency, he told the audience: “Neither side thinks the status quo is sustainable”, but he added that peace talks were yet to start in earnest and could take time to bear fruit.
His boss later struck a similar tone in remarks to reporters when he said the final tariff rate with China would come down “substantially” from the current 145%.
“It won’t be that high, not going to be that high,” Mr Trump said, adding: “We’re doing fine with China… we’re going to live together very happily and ideally work together.”
He gave no hint that he plans to ease wider tariffs on trading partners, including the UK which is currently subject to 25% tariffs on car, steel and aluminium imports and a wider 10% “baseline” tariff.
But the president did row back on an apparent threat, made last week, to sack the chair of the Federal Reserve Jerome Powell in revenge for the US central bank holding off on interest rate cuts that could provide some stimulus to the tariff-hit economy.
Mr Powell has said the Trump administration’s protectionist policies have created uncertainty over growth and the threat of higher inflation.
The president has dismissed those arguments but told reporters: “I have no intention of firing him”.
Federal Reserve chair Jerome Powell was nominated for the role by Donald Trump in 2017. File pic: AP
His comments were widely seen as an attempt to calm financial market concerns that the independence of the country’s central bank was under threat.
Analysts cautioned there was a long way to go to recover values seen before the start of the trade war, with the Nasdaq remaining almost 16% down in the year to date alone.
US government borrowing costs also remain elevated.
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What IMF said about the UK economy
Not helping sentiment were big downgrades to global growth forecasts by the International Monetary Fund on Tuesday.
Michael Brown, senior research strategist at Pepperstone, said of the investor mood: “Participants understandably remain jittery, not only as the haven value of both Treasuries and the USD (US dollar) continue to be called into question, but also as a huge degree of trade uncertainty continues to linger.
“As a reminder, the whole concept of ’90 deals in 90 days’ is currently running at ‘0 deals in 14 days’ which, to be frank, doesn’t quite have the same ring to it.”
Vladimir Putin told Donald Trump he “will not back down” from Russia’s goals in Ukraine during a phone call today, the Kremlin has said.
The Russian president spoke to his US counterpart for almost an hour, and Mr Trump “again raised the issue of an early end to military action” in Ukraine, Kremlin aide Yuri Ushakov told reporters.
In response, Mr Putin said “Russia will not back down” from its aims there, which include “the elimination of the well-known root causes that led to the current state of affairs,” Mr Ushakov said.
The phrase “root causes” is shorthand for Moscow’s argument that it was compelled to invade Ukraine in order to prevent the country from joining NATO.
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Trump and Putin’s latest call on Ukraine
Ukraine and its European allies say this is a pretext to justify what they call an imperial-style war, but Mr Trump has previously shown sympathy with Russia.
At the same time, Mr Putin told the US president that Russia is ready to continue negotiating, the aide said.
The Russian president said any prospective peace deal must see Ukraine give up its NATO bid and recognise his country’s territorial gains.
Volodymyr Zelenskyy, seen with Mr Trump in June, is pushing for Ukraine to join NATO. Pic: Reuters
He also briefed Mr Trump on agreements made last month, which saw Russia and Ukraine exchange prisoners of war and dead soldiers.
Specific dates for the third round of peace talks in Istanbul were not discussed – nor was the US decision to halt some shipments of critical weapons to Ukraine.
Mr Putin and Mr Trump’s call came after the Pentagon confirmed some weapons due to be sent to Ukraine have been held as it reviews military stockpiles.
The paused shipments include air defence missiles and precision-guided artillery, two people familiar with the situation have said.
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The decision led to Ukraine calling in the acting US envoy to Kyiv on Wednesday to underline the importance of military aid from Washington.
Kyiv also cautioned that the move would weaken Ukraine’s ability to defend itself against intensifying Russian airstrikes and battlefield advances.
Mr Putin and Mr Trump’s phone call was the sixth they have publicly disclosed since the US president returned to the White House in January.
Donald Trump’s ‘big beautiful bill’ has been passed by the US congress, sending it to the president to sign into law.
The controversial tax breaks and spending cuts package cleared its final hurdle as the Republican-controlled House of Representatives narrowly approved the bill with a 218-214 vote.
The bill delivers tax breaks Mr Trump promised in his 2024 election campaign, cuts health and food safety programmes, and zeroes out dozens of green energy incentives.
According to the nonpartisan Congressional Budget Office (CBO), it will lower tax revenues by $4.5trn over 10 years and add $3.4trn to the US’s $36.2trn debt.
But despite concerns over the 869-page bill’s price tag – and its hit to healthcare programmes – Republicans largely lined up in support, with just two rebelling on the vote.
House Speaker Mike Johnson is congratulated following the vote. Pic: Reuters
Every Democrat in Congress voted against the bill, blasting it as a giveaway to the wealthy that will leave millions of Americans uninsured.
House Speaker Mike Johnson made the Republicans’ closing argument for the bill, telling Congress: “For everyday Americans, this means real, positive change that they can feel.”
Earlier, the House’s Democratic leader Hakeem Jeffries gave a record-breaking eight-hour and 44-minute speech against it.
“The focus of this bill, the justification for all of the cuts that will hurt everyday Americans, is to provide massive tax breaks for billionaires,” he said.
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The bill’s spending cuts largely target Medicaid, the health programme that covers 71 million Americans on low incomes.
It will tighten enrolment standards, institute a work requirement and clamp down on a funding mechanism used by states to boost federal payments.
The changes could leave nearly 12 million people without health insurance, according to the CBO.
On the other side of the ledger, it will stave off tax increases that were due to hit most Americans at the end of the year, when tax cuts from President Trump’s first term were due to expire.
It also sets up new tax breaks for overtime pay, seniors and tipped income.
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The bill narrowly passed the US Senate on Tuesday after vice president JD Vance cast the deciding vote to break a 50-50 tie.
Mr Trump will sign it into law on Friday at 5pm local time (10pm in the UK), the White House said.
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