Stock markets rebounded with a relief rally after US Commerce Secretary Howard Lutnick suggested that the Trump administration might reconsider some of the tariffs. Hong Kong stocks led the gains, driven by optimism over China’s economic growth target, which raised hopes for further economic stimulus.
Key Drivers of Market Movement
Traders were faced with a flurry of news, including Beijing’s annual work report, Lutnick’s remarks about potential tariff adjustments with Canada and Mexico, and Germany’s announcement to increase defense spending. These developments had a significant impact on the market. US and European equity-index futures saw gains, while Asian markets, particularly in the region, recovered from initial losses. US Treasury yields remained steady after a decline on Tuesday.
Hong Kong Shares Lead the Way
Chinese shares in Hong Kong performed well following China’s National People’s Congress, which set an economic growth target of 5% for 2025. This marks the third consecutive year that China has maintained this target. Economists expect the Chinese government to introduce more stimulus measures, given the ongoing uncertainty surrounding tariffs and geopolitics.
Vey-Sern Ling, Managing Director at Union Bancaire Privee, commented, “There’s nothing to nitpick, just a robust growth target, and a clear intention to support the economy. They’re saying all the right things on employment, housing market, and stock market.”
Market Volatility Amid Trade War Uncertainty
Tuesday’s market moves were marked by volatility, driven by shifting sentiment amid uncertainty over President Donald Trump’s trade war and Germany’s defense spending plans. These fluctuations represent a new phase in Trump’s evolving economic and diplomatic stance on America’s role in the global market.
Tomo Kinoshita, Global Market Strategist at Invesco Asset Management, said, “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.”
China’s Economic Strategy and Deficit Increase
In addition to setting the 5% growth target, China raised its budget deficit to the highest level in 30 years. This move comes as the country grapples with deflation, a property crash, and the ongoing trade war with the US. Policymakers also set an inflation target of 2%, down from the long-standing 3% target. Following these announcements, the yuan weakened slightly.
Possible Relief on Tariffs for Mexico and Canada
In the US, Lutnick indicated that the Trump administration could soon outline a plan for tariff relief on Mexican and Canadian goods. He mentioned that this could come as early as Wednesday. The deal could involve some tariff reductions, but not full removal, with Trump likely reaching an agreement with Canada and Mexico, “but not all the way.”
Germany’s Bold Shift on Defense Spending
In European news, Germany announced plans to release hundreds of billions of euros for defense and infrastructure investments. This move breaks from its long-standing policy of strict government borrowing controls. The announcement led to a rise in the euro to a three-month high and contributed to a sell-off in global bond markets, impacting both bund futures and US Treasuries.
Commodity Markets
In commodities, oil continued its decline, and gold prices edged lower after a gain in the previous session.
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