U.S. stock markets initially surged on Wednesday, only to lose momentum later in the session as uncertainty over President Donald Trump’s trade policies fueled investor caution. The S&P 500, which had risen by 3.6% in early trading, ultimately finished the day 1.67% higher, marking a second consecutive day of gains but with a sharp drop from its peak.

Trump had earlier promised to “substantially” reduce tariffs on Chinese goods, sparking a brief market rally. However, the uncertainty surrounding the details of these plans, along with ongoing mixed signals from the White House, left investors on edge. In a notable move, Trump also dismissed rumors that he intended to fire Federal Reserve Chair Jerome Powell, an issue that had been raising concerns among market participants.

Mixed Messages on Tariffs and Trade with China

According to a report by The Wall Street Journal, the administration is considering reducing tariffs on certain Chinese imports to a range of 50% to 65%. Additionally, a tiered tariff system may be introduced, with lower duties on non-strategic goods and higher rates—possibly up to 100%—on critical Chinese products. This potential tariff relief would represent a significant shift from the current situation, where many Chinese imports are subject to tariffs as high as 145%.

Despite these reports, Treasury Secretary Scott Bessent, speaking in Washington, clarified that no unilateral tariff offer had been made to China. Instead, he highlighted the possibility of a major trade agreement between the two nations. Bessent also criticized China’s status as a developing economy, suggesting that its growing global economic power no longer justifies the special trade privileges it has received in the past.

Conflicting Statements Add to Investor Uncertainty

Later in the day, Trump denied media reports suggesting that tariffs on Chinese auto parts would be reduced. Instead, he hinted at potentially increasing tariffs on Canadian-made vehicle components. Earlier this month, the president imposed a 25% tariff on all auto imports but temporarily exempted parts covered under the US-Mexico-Canada Agreement (USMCA) for a one-month period.

These conflicting statements on tariffs, alongside shifting policy announcements, have contributed to heightened uncertainty among investors. Traders are cautious as the unclear direction of U.S. trade policy makes it difficult to predict how markets will respond in the coming weeks.

Global Markets React to Uncertainty

As the U.S. market remained volatile, futures for major stock indices pointed to mixed results in Thursday’s Asian trading session. The Dow Jones Industrial Average dropped by 0.28%, the S&P 500 fell 0.14%, and the Nasdaq saw a decline of 0.22%. Investors appeared to respond to the ongoing uncertainty around U.S. trade policies and the Federal Reserve’s stance on interest rates.

In Asia, stock markets exhibited uneven performance. Hong Kong’s Hang Seng index fell by 1.23%, while Japan’s Nikkei gained 0.58%. The South Korean Kospi lost 0.33%, while Australia’s ASX 200 posted a modest gain of 0.66%. These mixed reactions underscore the global impact of the ongoing trade uncertainties between the U.S. and China, as well as the unpredictable nature of policy statements coming from Washington.

European Markets Perform Better Amid Steadier Conditions

European futures indicated a flat opening on Thursday, but recent trading sessions have seen European indices outperform their U.S. counterparts. Germany’s DAX index surged 3.14%, reaching a one-month high, while the Euro Stoxx 600 rose by 1.8%, extending its recent rally. These positive gains in Europe are attributed to a more stable economic environment compared to the volatility in U.S. markets.

Currency and Commodities React to Volatility

The euro faced another decline against the U.S. dollar, dropping to just above 1.13 by Thursday morning. This marked a further weakening of the euro, following its fall from a high of 1.1566 earlier in the week. Analysts suggest that the euro’s struggles can be linked to Trump’s mixed messages on trade and his comments about the Federal Reserve’s role in the economy.

Meanwhile, gold prices recovered after a brief decline earlier in the week. Spot gold rose 1.2% to $3,329 per ounce in early Thursday trading, while gold futures climbed 1.3% to $3,338 per ounce. The precious metal’s rebound comes as investors seek safe-haven assets amid the ongoing geopolitical and policy-related uncertainties.

Market Sentiment Remains Cautious

As global markets digest the latest developments on trade and tariffs, the outlook remains uncertain. Investors are waiting for clearer signals from the U.S. government regarding its stance on China and other critical trade relationships. Analysts warn that continued volatility and mixed policy signals could prolong the market’s cautious sentiment, with the potential for further declines in U.S. stock indices.

In the meantime, traders are likely to remain on edge, watching closely for any further changes in U.S. trade policy or statements from President Trump and key officials. The evolving situation could continue to weigh on investor confidence in the short term.