U.S. equity futures bounced higher Wednesday, while the dollar sank to at three month low against its global peers, as investors reacted to a potential compromise on tariffs while adjusting to a seismic change in German fiscal policy that will likely reverberate around the entire region.
Stocks ended firmly lower again Tuesday, with the S&P 500 sliding 1.22% and falling deeper into negative territory for the year following the introduction of tariffs on goods from Canada, Mexico and China and another warning on consumer spending from retail giant Target Corp. (TGT) .
Investors pared some of those declines in the afternoon session, however, following news that Germany’s incoming Chancellor, Friedrich Merz, plans to abandon the country’s debt brake and in order to invest billions in infrastructure and defense projects.
The sudden stimulus, perhaps the biggest change to Germany’s post-war economy since reunification, sent German government bond yields soaring, lifted the euro to a four-month high against the U.S. dollar and sparked a fresh record high for the regional Stoxx 600 benchmark.
Comments from Commerce Secretary Howard Lutnick, meanwhile, suggested the President Donald Trump could be ready to compromise on tariffs placed on goods within the USMCA treaty that he himself renegotiated during his last term in office, although the President defended his strategy in a speech to Congress last night.
“Tariffs are about making America rich again and making America great again,” the President said. “And it’s happening, and it will happen rather quickly. There’ll be a little disturbance, but we’re OK with that. It won’t be much.”
The uncertainty surrounding tariffs, however, has kept Wall Street on high alert, with the market’s key volatility gauge, the CBOE Group’s VIX index, pegged at $22.85, near the highest levels since early December.
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That suggests traders are expecting daily swings of around 1.42%, or 82 points, for the S&P 500 each day for the next 30 days. Yesterday’s peak-to-trough move for the benchmark was around 133 points.
Futures contracts tied to the S&P 500 suggest an opening bell gain of around 38 points, with the Dow Jones Industrial Average called 252 points higher and the Nasdaq set for a gain of around 162 points.
Away from equities, the U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.67% lower at 105.034 and trading at the lowest levels since early December.
Benchmark 10-year Treasury note yields, meanwhile, were trading around 10 basis points higher from Tuesday levels at 4.246% heading into today’s ADP Employment report at 8:15 am Eastern time.
In overseas markets, Germany’s renewed fiscal vigor lifted the DAX more than 3.6% in mid-day Frankfurt trading, with regional Stoxx 600 benchmark rising 1.54% after hitting a fresh all-time higher earlier in the session.
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Overnight in Asia, China’s annual National People’s Congress of party leaders set a 5% GDP growth target for the world’s second largest economy, despite the U.S. tariff threat, helping domestic stocks to solid session gains and lifting the regional MSCI ex-Japan benchmark 1.8% higher into the closing trading.
Japan’s Nikkei 225, meanwhile, closed 0.33% higher, although trade war concerns capped gains and continue to test investor sentiment.
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