U.S. markets cheer as ‘reciprocal’ tariffs struck down

U.S. President Donald Trump has been accused of walking back on his trade policies — a Financial Times columnist succinctly described that apparent pattern as the “TACO” theory, or “Trump Always Chickens Out.”

The walk-backs on tariffs has largely been a positive for markets. Now, a federal court has struck down his “reciprocal” tariffs — the same that were put on hold by Trump — lifting U.S. futures.

Markets in extended trading were already buoyed by Nvidia’s sales figure in the January quarter. The chipmaker posted a 73% surge in revenue from its data center division, which includes artificial intelligence chips and other related components.

Overall revenue jumped 69% to $44.06 billion from $26 billion a year earlier — and would have been even higher if not for restrictions on exports to China, Nvidia said.

In other words, demand for AI chips is still booming, despite worries about companies not needing as many advanced chips and corporations spending less because of uncertainty caused by tariffs. And with the courts starting to rein in Trump’s trade policies, it’ll likely boost business sentiment — and Nvidia’s revenue.

However, chip export restrictions to China are unlikely to be pulled back, since those rules, in the White House’s view, are more a matter of national security than “negotiation” — which was how Trump characterized his tariff moves.

In any case, with recent developments, there could be much less deal-making for Trump to do.

Trump ‘reciprocal’ tariffs stuck down
The U.S. Court of International Trade on Wednesday blocked Trump’s “reciprocal” tariffs on countries worldwide, which he enacted in April. In its ruling, the court said the International Emergency Economic Powers Act, which Trump invoked to impose the tariffs, does not authorize a president to levy universal duties on imports. The separate tariffs on Canada, Mexico, and China related to drug trafficking also “fail because they do not deal with the threats set forth in those orders,” the panel wrote, and ordered a permanent halt to the tariffs at issue in the case.

Nvidia posts revenue jump despite China curbs
Nvidia first-quarter earnings beat LSEG estimates. Earnings per share came in at 96 cents adjusted, higher than 93 cents expected, while revenue was $44.06 billion — juiced by a 73% year-on-year jump in revenue from Nvidia’s data center division — which beat the $43.31 billion forecast. Investors cheered the results, pushing up Nvidia shares by 4.89% in extended trading. Export restrictions to China, however, are weighing on Nvidia. “The $50 billion China market is effectively closed to U.S. industry,” CEO Jensen Huang said.

‘Negotiation,’ not backing out: Trump
Trump on Wednesday pushed back against the “TACO theory.” It describes a pattern which Trump announces new tariffs, sending markets tumbling, and then later pauses or lightens them, causing markets to rebound. When asked by CNBC about the term, Trump said his  moves are “called negotiation.”

Markets fell ahead Nvidia earnings
Major U.S. indexes slipped Wednesday as the yield on the 30-year Treasury briefly touched 5%. However, U.S. stock futures jumped early Thursday on news that Trump’s “reciprocal” tariffs were struck down by a Federal court. Asia-Pacific markets rose Thursday. South Korea’s Kospi index was up 1.8% at 1:45 p.m. Singapore time as the country’s central bank cut its interest rate to 2.5% from 2.75%, its lowest level since August 2022 and as expected by a Reuters poll of economists.

Investors are growing nervous holding U.S. debt
Spreads, or premiums, on U.S. 1-year credit default swaps — which are essentially the costs of insuring exposure to U.S. government debt — were up at 52 basis points as of Wednesday from 16 basis points at the start of this year, and are hovering at two-year highs, LSEG data showed. That suggests investors are growing nervous about the risks of financing U.S. debt. But analysts say rising premiums are more a speculative play or hedge against risk rather than a sign of impending financial crisis and insolvency.

Tesla investors want Musk to work more
Tesla investors on Wednesday wrote a letter to Robyn Denholm, the board chair, demanding CEO Elon Musk to work a minimum of 40 hours per week at the automaker as a condition of any new compensation plan they may arrange for him. Tesla’s “declining sales” and “a plummeting global reputation” linked to Musk’s role in the U.S. Department of Government Efficiency are are cause for serious concern,” the group of pension fund leaders wrote.

[PRO] Bond yields might still pressure stocks
Higher bond yields on Wednesday appeared to help put a damper on the stock market’s strong start to the week, with the 30-year Treasury yield pushing back toward the 5% level as the S&P 500 stalled. Analysts are warning the bond market could experience more ruction, which would put a lid on any stock rally.

Xi wants to boost China’s advanced manufacturing prowess — and Trump may not like it

Forget the factory lines for socks, sneakers and T-shirts. Trump wants to boost the domestic production of high-tech products, not apparel or footwear, he told reporters Sunday. However, China is doubling down on its efforts to bolster advanced manufacturing, which could put both countries on a collision course.

Just last week, Chinese President Xi Jinping reaffirmed his plans for manufacturing-led growth during a visit to the northern province of Henan, pressing ahead with a strategy long criticized by the U.S. and major trade partners for deepening global trade imbalances.

The manufacturing sector contributed to over 25% of China’s gross domestic product in 2023, according to the World Bank. While China’s push to expand its manufacturing capabilities is part of its goal to achieve self-reliance, especially in high-tech sectors, this could run counter to the Trump administration’s demands that China address its trade imbalances, experts warn.