Markets are buzzing with anticipation as Dow futures soar nearly 400 points, fueled by the prospect of a 'TACO' trade resurgence following President Trump's recent remarks. In a surprising shift from his previous aggressive stance, Trump's message on Truth Social reads, 'Don't worry about China; it will all be fine!' This comes after Trump's Friday announcement of a 100% tariff on Chinese imports and restrictions on U.S. software exports, which sent the S&P 500 tumbling. The market's reaction is a stark contrast to the fiery rhetoric Trump displayed just a day prior, criticizing China's export controls on rare earths, a critical resource for various industries. Michael Brown, a senior research strategist at Pepperstone, notes that market participants are embracing the TACO trade once more, attributing this to Trump's and Vice President JD Vance's conciliatory statements suggesting the tariffs might be a negotiation tactic. The Dow Jones Industrial Average futures surged by 0.84%, S&P 500 futures by 1.27%, and Nasdaq futures by 1.79%. The 10-year Treasury yield dropped significantly, while the U.S. dollar strengthened against the euro and yen. Gold prices hit a new high, and U.S. oil futures rose, indicating a complex interplay of economic and geopolitical factors. This shift in tone from Trump is reminiscent of his previous strategy, where he imposed high tariffs and then paused them for negotiations, a pattern observed with other trade partners like the European Union. Brown suggests that Trump's new China tariff, set to take effect on November 1, could be another instance of his 'escalate to de-escalate' approach, potentially leading to a dip in equities that could be a buying opportunity. Meanwhile, the Federal Reserve's decision to resume rate cuts amid solid economic growth is expected to boost the dollar, which may withstand tariff threats. Ed Yardeni, a market veteran, agrees that both the U.S. and China are likely to back down from the brink, as a prolonged trade war could lead to a global recession. However, China remains defiant, emphasizing its sovereignty in rare earth export controls, a move that has sparked concerns about its global influence and control over strategic materials and technologies. Dean Ball and Dali Yang highlight the potential for China to exert unprecedented control over the global economy, marking a decisive moment in the evolution of a China-led order.
