World stocks recover from a beating but the mood is fragile

Zawya

08-04-2025

World markets won a reprieve on Tuesday after three days of heavy selling that wiped trillions of dollars off the value of shares, but caution prevailed with focus on whether Washington might be willing to negotiate on some of its aggressive tariffs.
Asia stocks bounced off 1-1/2 year lows, European shares rallied over 1.5% and U.S. stock futures pointed to a positive open for Wall Street where shares had fallen to their lowest in over a year on Monday before steadying.
U.S. 10-year Treasury yields also steadied after posting their biggest one-day jump in a year on Monday and the dollar, which has taken a beating from the tariff turmoil, remained weak against other major currencies.
"The mood is a little brighter, at least if you are looking at certain markets such as Japan which might be a priority for trade deal, but there is lots of uncertainty," said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.
"Markets could continue to be extremely volatile."
Japan's blue-chip Nikkei stock index closed 6% higher, with Treasury Secretary Scott Bessent tasked with leading trade negotiations with Tokyo, viewed as a positive sign.
In Europe, shares rose from 14-month lows and markets in London, Paris and Frankfurt were up more than 1% each, while oil was a touch firmer but kept Monday's four-year lows in sight.
"Importantly, a little ray of sunshine is starting to emerge that gives hope that the U.S. is genuinely open to trade negotiations, (with) the most significant being Japan with Treasury Secretary Bessent," said Tapas Strickland, head of market economics at National Australia Bank.
FRAGILE
But less than a week since U.S. President Donald Trump unleashed sweeping tariffs that sent world markets into a tailspin, the mood remained fragile.
The VIX stocks volatility index, often referred to as Wall Street's fear gauge, remained elevated at around 42 points -- albeit below Monday's peak just above 60.
China's markets rose only modestly after the country's sovereign wealth funds stepped in to buy shares. Chip-export-dependent Taiwan's benchmark tumbled 4%, a day after suffering its worst fall on record.
Thai stocks dropped nearly 5% in catch-up selling from a holiday on Monday, while Indonesia returned from a week-long holiday to 8% losses.
The Chinese yuan fell to 7.3595 per dollar in the offshore market, the weakest in two months, before rebounding to be slightly stronger than Monday's close at 7.3393.
The heightened uncertainty in markets wasn't helped by shifting headlines on trade as investors looked for respite from the sharp market volatility.
"The impulsive nature of the administration means that market participants may still lack much conviction," said Marc Chandler, chief market strategist at Bannockburn Capital Markets.
Trump also dug in his heels over China, vowing additional 50% levies if Beijing does not withdraw retaliatory tariffs on the United States. Beijing said on Tuesday it will never accept the "blackmail nature" of U.S. tariff threats.
The European Commission said on Monday it had offered a "zero-for-zero" tariff deal to avert a trade war with the United States as EU ministers agreed to prioritise negotiations, while also striking back with 25% tariffs on some U.S. imports.
DOLLAR FRAIL
And in one sign of lingering unease, the dollar - often a safe-haven at times of uncertainty - softened around 0.2% against a basket of other currencies.
The dollar eased 0.6% to 146.91. The euro firmed 0.2% to $1.0923, sterling also climbed a fifth of a percent, trading at $1.2749.
The 10-year Treasury yield was lower in London trade after jumping some 17 bps on Monday as it bounced from six-month lows.
Analysts said a number of reasons may have explained that sharp rise in U.S. bond yields including investors selling their most liquid assets to make up for falls elsewhere.
On Tuesday, Japanese government bond yields rose off their own multi-month lows, with the 10-year yield rising almost 16 bps to 1.27%.
Gold added almost 1% to $3,010 per ounce, although it was still well back from last Thursday's record peak at $3,167.57, reached in the immediate aftermath of Trump's "Liberation Day" tariff announcement.
Brent crude futures were just 0.2% firmer at $64.35 per barrel, and U.S. West Texas Intermediate crude futures rose 0.3% to $60.89.