US stock futures up around 1% as China vows to fight extra 50% tariff threat

Tuesday has begun with some relief for embattled stock markets with US futures higher following a third day of negative sessions.

The S&P 50 closed down 0.23% Monday with the Dow Jones down 0.9%, and the Nasdaq managing a narrow win and closing up 0.1%. Futures at 5am ET were up at least 1% with the Dow nearer 2%. European and Asia markets are also trading higher.

Several factors are in play, most notably tough talk from China which vowed to “fight to the end” as Trump threatened the world’s second largest economy with an additional 50% tariff in response to Beijing’s retaliatory 34% tariff, which was itself a response to Trump’s 54% tariff.

Markets were briefly boosted by speculation that tariffs may be paused for countries willing to negotiate, but the White House dismissed claims as “fake news.”

“The markets have come very far, very fast,” Michael Kelly, global head of multi asset at PineBridge Investments told Bloomberg. “It’s time for them to stabilize and figure out what the next turn of events is: up because the tariffs are coming down or down because the global economy is going down.”

US Treasuries saw yields flat for 10-year notes at just above 4% while 2-year notes were around 3.75%. Traders are anticipating more Fed rate cuts this year, maybe as many as five.

Meanwhile, oil prices have stabilized with the international benchmark Brent Crude at around $64 a barrel and WTI near $60. But Goldman Sachs sees the potential for an “extreme” case scenario drop to below $40 if the trade war endures and supply builds up. Its base case is $55 for Brent by December.

As earnings season gets underway, there is likely to be further volatility for equities. Carol Schleif, chief markets strategist at BMO Private Wealth in Minneapolis, says it should give investors insights into how companies are planning to adapt and respond.

“Companies that try to absorb the increased costs could see margin pressure if sufficient offsets from other areas of their business are not found,” she said. “The US is substantially less import dependent than most other countries, but tariffs at these levels are likely to be felt all the way through the system – and headlines are liable to insure they remain top of mind.”