Mixed sentiments and 'TACO trade' set up unstable rallies as markets remain indecisive

Stock futures dipped Thursday as the markets reacted to conflicting signals coming out of Washington, Brazil, and global indices following what had been a strong Wednesday session.

According to data from CNBC, the S&P 500 and Nasdaq-100 futures both fell 0.2%, while the Dow Jones dropped by 100 points, signaling caution across US traders heading into the morning.

President Donald Trump announced late Wednesday that the United States will slap a 50% tariff on imported copper, effective August 1. He also confirmed another 50% tariff on Brazil, citing once again what he described as a “very unfair trade relationship” and adding that it had been “far from Reciprocal.”

Trump tied part of the move to the ongoing trial of Brazil’s former leader Jair Bolsonaro, who is currently facing charges for allegedly trying to overturn the results of the 2022 election.

Brazil’s President Luiz Inacio Lula da Silva hit back fast, saying the country will respond under its economic reciprocity law, signaling a trade retaliation is incoming. Before the market opened, the iShares MSCI Brazil ETF (EWZ) tumbled 1.8%, showing early jitters from investors over the US-Brazil standoff.

At the same time, Bitcoin surged sky high. The price of the world’s biggest crypto asset surged late Wednesday to a new all-time high of $112,259, passing its May 22 peak of $111,999 just before the 4:00 p.m. ET close. That jump was driven by a wider tech rally led by Nvidia, pushing risk appetite higher just before the overnight pullback.

Trump tariffs add confusion as crypto and yields move separately

Despite the noise from tariffs, bond markets remained calm. The 10-year Treasury yield stayed at 4.35%, the 30-year edged up slightly to 4.882%, and the 2-year slipped marginally to 3.853%. Those minor movements showed that fixed income investors aren’t yet panicking over the trade headlines.

But over in Europe, equities painted a different picture. The Stoxx 600 gained 0.6% in the mid-morning session. In the UK, the FTSE 100 hit a fresh intraday record at 8,965.7, rising 1.1%. That rally came even as trade worries loomed.

Analysts pointed to the so-called “TACO trade,” which stands for “Trump Always Chickens Out,” as a reason why investors still held on to optimism.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said Thursday morning that traders aren’t treating the tariffs as permanent. “Hopes are riding high that the effects on global growth won’t be as onerous as feared,” she said in a note.

She also pointed out that the structure of the FTSE 100 helped boost sentiment.

“The FTSE 100 is stuffed full of multinationals which are sensitive to the outlook for the world economy and with the so-called ‘TACO trade’ in full swing, it’s benefiting from more optimism around,” Streeter added.

Not every company shared the upside. Switzerland’s Barry Callebaut saw its shares collapse by 17% after the chocolate manufacturer reported a 6.3% drop in sales for the nine months ending May 31. The company also expects a 7% fall in volume for the full year, sparking concern over weak consumer demand.

Asia trades higher as indexes jump, but India and Japan lag behind

Across Asia, markets were mostly green. Shanghai rose 0.48% to 3,509.68, Shenzhen climbed 0.47% to 10,631.13, and the Hang Seng Index was up 0.57%, hitting 24,028.37.

The SGX-CNBC China Growth Index advanced 0.67% to 1,594.23, tracking the regional mood. South Korea’s KOSPI led the gains, jumping 1.58% to 3,183.23. Meanwhile, Taiwan saw a solid uptick of 0.74%, with its index reaching 22,693.25.

Australia’s ASX 200 also moved higher by 0.59%, closing at 8,589.2. Singapore’s STI rose 0.44%, and Malaysia’s benchmark index gained 0.48%. But not all Asian bourses followed the rally.

Japan’s Nikkei dropped 0.44% to 39,646.36, weighed down by profit-taking. India’s NIFTY 50 slid 0.47% to 25,355.25, and Thailand’s SETI dropped 0.47% to 1,110.4. New Zealand’s NZX 50 lost 0.07%, landing at 12,760.2.

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