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.
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.
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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”.
Image: 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.”
The deployment of National Guard soldiers on to the streets of LA by Donald Trump was always deeply controversial – and now it has been deemed illegal, too, by a federal judge.
In late spring in Los Angeles, I observed as peaceful protests against immigration raids turned confrontational.
I watched as Waymos – self-driving cars – were set alight and people waving flags shut down one of the city’s busiest freeways. I saw government buildings spray-painted with anti-government sentiment and expletives. Some people even threw bottles at police officers in riot gear.
In exchange, I saw law enforcement deploy “flash bang” crowd control devices and fire rubber bullets into crowds, indiscriminately, on occasion.
Image: Mounted Los Angeles police officers disperse protesters earlier this summer. Pic: San Francisco Chronicle/AP
Image: A person reacts to non-lethal munitions shot in Los Angeles.
Pic: Reuters
But Trump sent them in anyway, against the wishes of the local government. LA mayor Karen Bass condemned the deployment as an act of political theatre and said it risked stoking tensions.
The language Trump used was, arguably, inflammatory, too. He described LA as an “invaded” and “occupied city”. He spoke of “a full-blown assault on peace”, carried out by “rioters bearing foreign flags with the aim of continuing a foreign invasion of our country”.
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Trump: ‘We will liberate Los Angeles’
It didn’t reflect reality. The size of the protests were modest, several thousand people marching through a handful of streets in downtown LA, a city which spans 500 square miles and has a population of almost four million.
The majority of the soldiers simply stood guard outside government buildings, often looking bored. Some of them are still here, with nothing to do. Now a judge has ruled that the operation was illegal.
US District Judge Charles Breyer said the Trump administration “used armed soldiers (whose identity was often obscured by protective armour) and military vehicles to set up protective perimeters and traffic blockades, engage in crowd control, and otherwise demonstrate a military presence in and around Los Angeles”.
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Marines head to Los Angeles
In a scathing judgement, he effectively accused the White House of turning National Guard soldiers and marines into a “national police force.”
That breaches a law from 1878, barring the use of soldiers for civilian law enforcement activities.
It is a blow to what some view as the president’s ambition to federalise Democrat-run cities and deploy the National Guard in other states around the country. He had threatened to send troops to Chicago as part of an initiative he says is cracking down on crime, widening the use of National Guard troops, as seen on the streets of Washington DC.
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The fightback against immigration raids in LA
But since this judge ruled that the deployment of National Guard and marines to LA in June was unlawful in the way it unfolded, Trump may have to be inventive with his rationale for sending soldiers into other US cities in the future.
This legal judgement, though, is being appealed and may well be overturned. Either way, it is unlikely to stem the president’s ambition to act as national police chief.
A strike on what the US called a Venezuelan gang’s drug-carrying vessel killed 11 people, Donald Trump has said.
Speaking at a news conference at the White House, the US president told reporters: “We just, over the last few minutes, literally shot out a boat, a drug-carrying boat, a lot of drugs in that boat.
“And there’s more where that came from. We have a lot of drugs pouring into our country, coming in for a long time.”
Secretary of State Marco Rubio then added: “These particular drugs were probably headed to Trinidad or some other country in the Caribbean.
“Suffice to say the president is going to be on offence against drug cartels and drug trafficking in the United States.”
Mr Trump later posted a video on Truth Social of a vessel exploding, in what appeared to mark the first US military operation in the southern Caribbean to crack down on drug cartels.
The president said on social media that the US military had identified the crew as members of Venezuelangang Tren de Aragua, which was designated a terrorist group in February.
He then alleged that Tren de Aragua is being controlled by Venezuela’s President Nicolas Maduro, which the country denies.
Venezuelan officials have repeatedly said that Tren de Aragua is no longer active in their country after they dismantled it during a prison raid in 2023.
The US last month doubled its reward for information leading to the arrest of Mr Maduro to $50m, accusing him of links to drug trafficking and criminal groups.
The US has deployed warships in the southern Caribbean in recent weeks.
Seven warships, along with one nuclear-powered fast-attack submarine, are either in the region or expected to arrive soon, carrying more than 4,500 sailors and Marines.
Officials have said that the US military has also been flying P-8 spy planes over international waters in the region to gather intelligence.
Mr Maduro said on Monday that he “would constitutionally declare a republic in arms” if Venezuela were attacked by US forces deployed in the Caribbean.