In a significant de-escalation of trade tensions, US President Donald Trump has withdrawn a tariff threat previously aimed at European allies, as part of his ongoing pressure campaign to secure control over Greenland. This move has sparked a notable rally in global sharemarkets, with Australian stocks experiencing a sharp uptick as investors capitalise on the reduced geopolitical risk.
Market Reaction to Geopolitical Easing
The benchmark S&P/ASX 200 index briefly surpassed the 8,860 point mark on Thursday, before settling slightly lower, as the retreat from tariff threats flowed into Australian markets. This surge helped recoup approximately half of the losses incurred over the past week, adding around $17 billion in market value during afternoon trading. The rally was fuelled by what traders have dubbed the "Trump Always Chickens Out" or TACO strategy, which anticipates the American leader backing down from aggressive tariff declarations after claiming victory.
Expert Insights on Market Dynamics
Michael McCarthy, a veteran financial markets commentator from the online trading platform Moomoo, noted that while risk factors are accumulating, market indicators are currently pointing upward following the latest easing of tensions. "We've seen a number of things that in the past could have triggered a very significant correction in the equity market, but investors have just shrugged it off," McCarthy observed. He highlighted potential triggers for a sustained global equity correction, including an outbreak of inflation, a serious increase in geopolitical tensions, and the risk of a sell-off in US bonds.
Chris Weston, head of research at Melbourne-based financial firm Pepperstone, emphasised that investors remain cautious and seek more details on Trump's claimed "framework of a future deal" regarding Greenland before fully discounting further risks in Europe. "That said, it may not be entirely straightforward – many will want to see the devil in the detail of the deal and the finer details of any agreement, what is truly at stake, and how the deal is articulated from the European side," Weston explained.
Doubts Over Greenland Deal and Economic Factors
Amid the market optimism, doubts have emerged about the validity of Trump's assertions. Sascha Faxe, a member of Denmark's parliament, stated in an interview with Sky News that any deal involving Greenland without its inclusion in negotiations is "not real." This scepticism adds a layer of uncertainty to the geopolitical landscape.
On the domestic front, Australia's mineral-focused share market has benefited from robust commodity prices, with iron ore demand remaining resilient and gold and copper trading near record highs. However, sticky inflation and the growing likelihood of a near-term interest rate hike have tempered stock market gains. The release of an Australian jobs report showing a surge in employment has further fuelled expectations of a rate rise as early as next month, which typically poses challenges for stocks by increasing borrowing costs and making bonds more attractive.
Concurrently, the Australian dollar has strengthened to a 15-month high against the US dollar, trading near the US68c mark, reflecting broader economic shifts amid these developments.
