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Investing.com - U.S. stock futures slipped on Thursday, as markets assessed the fallout from President Donald Trump's sudden reversal of his sweeping tariffs on most countries. Trump suggested that "yippy" financial markets had helped persuade him to change course and introduce a 90-day delay on many of the levies. However, elevated duties on China remained in place, sparking a retaliation from Beijing that exacerbated worries over a tit-for-tat trade war between the world's two largest economies. Elsewhere, investors will be keeping tabs on crucial U.S. inflation data, which could provide insight into how the tariff turmoil is affecting price growth.
1. Futures edge down
U.S. stock futures pointed lower, suggesting a possible wavering in investor sentiment despite Trump's last-minute reversal on tariffs.
By 03:47 ET (07:47 GMT), the Dow futures contract had slipped by 400 points, or 1.0%, S&P 500 futures had fallen by 73 points, or 1.3%, and Nasdaq 100 futures had dropped by 345 points, or 1.8%. The dollar also edged down, struggling to hold on to overnight gains.
The main averages logged sharp gains on Wednesday after Trump announced the tariff reprieve, echoing a massive relief rally in October 2008, when investors were hopeful that measures would be unveiled to stem a brewing financial crisis.
By the end of the trading day on Wall Street, the blue-chip Dow Jones Industrial Average had soared by 2,963 points, or 7.9%, the benchmark S&P 500 had spiked by 474 points, or 9.5%, and the tech-heavy Nasdaq Composite had surged by 1,857 points, or 12.2%. Almost every stock in the S&P 500 rose.
Equities had plunged in volatile dealmaking in recent days, erasing trillions of dollars in global stocks, as investors fretted over the impact of the tariffs on economic growth and inflation.
In fixed income markets, Treasury yields pared back gains following signs of solid demand in a government auction of $39 billion in 10-year notes. A rout in the bond market this week, which was reminiscent of a COVID-era rush for cash, appeared to be cited by Trump as one reason for his trade policy U-turn.
"Although [...] Trump was able to resist the stock market sell-off, once the bond market began to weaken too, it was only a matter of time before he folded on his eye-wateringly high tariffs," analysts at Capital Economics said in a note to clients.
2. Trump's tariff reprieve
With markets around the world roiling, Trump abruptly revealed a reversal of most of his punishing and sweeping tariffs on a host of countries, saying he would pause them for 90 days.
However, Trump said in a social media post that the countries would still face a "substantially lowered Reciprocal Tariff" of 10%, which will stack of top of previously-imposed 25% levies on steel, aluminum and cars.
Crucially, the halt did not apply to China, long the main focus of Trump's trade-related ire. Instead, he said he would lift the tariffs on Chinese imports to a staggering 125% -- a move that came after Beijing raised its own duties on incoming U.S. products to 84%, intensifying a trade war between the world's two largest economies. China was the second-biggest source of U.S. imports last year.
Explaining his stunning about-face to reporters, Trump, who had previously insisted that his elevated tariffs would remain in place and told Americans to "BE COOL!" despite the financial market ructions, said that people were "getting yippy" and "getting a little bit afraid."
Analysts flagged that uncertainty remains around the trajectory of Trump's tariffs, which have cast a pall over the outlook for the U.S. economy and complicated how businesses will approach future spending.
"[D]on’t forget that we have been here before with announcements and then we get some pauses, only for the originally announced tariff to be reintroduced again. As such caution remains warranted," said Carsten Brzeski, Global Head of Macro) at ING, in a note.
"It would be a surprise if tonight’s announcement was really the return of ‘common sense.'"
3. Chinese retaliatory tariffs take effect
China’s retaliatory 84% tariffs on U.S. goods went into effect from 12:01 CST (04:00 GMT), several local media outlets reported.
The country has largely decried Trump’s increased tariffs, and had vowed to respond to the new duties. Beijing has so far shown no signs of backing down from the threat, and has warned of a bitter trade war with the United States. China’s Commerce Ministry said it was prepared to “fight to the end.”
Trump had earlier imposed 104% tariffs on the country on Wednesday, but later hiked this figure to 125%, criticizing Beijing’s retaliatory measures.
Softer-than-expected Chinese inflation data for March suggested that the U.S. trade duties may already be chipping away at the world’s second-largest economy. Chinese officials are expected to dole out even more fiscal and monetary support to help offset the impact of the levies.
4. CPI ahead
Markets are now looking ahead to the latest reading of the U.S. consumer price index (CPI) for March, which could provide a glimpse into inflationary pressures prior to the implementation -- and eventual delay -- of many of Trump's tariffs.
Economists expect headline CPI to cool slightly to 2.5% in the twelve months to March, down from 2.8% in February. Month-on-month, it is seen easing to 0.1% from 0.2%.
The so-called "core" measure, which strips out more volatile items like food and fuel, is tipped to come in at 3.0% annually and 0.3% month-on-month. In February, they stood at 3.1% and 0.2%, respectively.
Recent data have suggested that consumer inflation expectations have risen due to the tariffs. The latest University of Michigan consumer survey in March showed that long-run inflation expectations were above 4% "in light of frequent developments and changes with economic policy."
Meanwhile, the Personal Consumption Expenditures price index -- which is closely monitored by the Federal Reserve -- pointed to sticky, albeit stable, inflationary pressures. Still, minutes from the Fed's meeting last month indicated that policymakers are worried that twin risks of higher prices and slower growth are facing the U.S. economy.
5. Oil drops
Oil prices fell on concerns over the escalating trade war between the U.S. and China.
At 03:39 ET, Brent futures dropped 2.1% to $64.13 a barrel. U.S. West Texas Intermediate crude futures fell 2.0% to $61.12 a barrel.
The benchmark crude contracts had settled 4% higher on Wednesday, following the announcement of a tariff pause for most countries, after sliding as much as 7% during the session.
But the higher U.S. tariffs on China still leave plenty of uncertainty in the markets. Any impact to global growth from the levies left in place on China -- the world's largest crude importer -- could weigh on demand for oil.