Markets rebound amid latest US-China tariff spat as traders look to possible ‘Taco trade’

European stock markets have edged higher and cryptocurrencies rebounded amid signs that a new front in the US-China trade war may not be a severe as first feared.

Tensions between Washington and Beijing escalated again on Friday and over the weekend, as Donald Trump threatened to impose additional US tariffs of 100% on China starting next month.

The US president accused the country of “very hostile” moves to restrict exports of rare earth minerals needed for American industry. Beijing said it would retaliate if Trump does not back down.

However, Trump and senior US officials opened a door to a possible deal with China on Sunday. The president wrote on Truth Social: “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”

The comments have offered some comfort for investors in Europe, with stocks opening mostly higher on Monday. The UK’s blue-chip FTSE 100 index rose by 0.2% in early trading, while markets in France, Spain, Germany were all up by about 0.5%.

Most big cryptocurrencies rebounded after a deep sell-off over the weekend. Bitcoin edged up by 0.3% to more than $115,000, after falling below $105,000 on Friday. Ether had dropped to less than $3,500 but rebounded to about $4,100.

Richard Hunter, of the broker Interactive Investor, said investors were hoping for a “Taco trade”, which is the idea that markets rally because “Trump Always Chickens Out” (Taco) of aggressive tariff decisions.

“The president’s propensity to shoot from the hip unsettles the investment environment, even though some are already speculating that the Taco trade is alive and well,” he said.

However, a heightened sense of uncertainty is pushing investors to gold, which is considered a safe haven asset. Its spot price hit another new high on Monday, rising to as high as $4,078.5 an ounce.

Derren Nathan, of the broker Hargreaves Lansdown, noted that US stock futures suggested that there could be “at least a partial rebound” when the market opens later this afternoon.

“Traders may be banking on a similar pattern where American indexes entered a six-month period of almost unbroken growth helped by a string of trade deals, and growing hopes of a soft-landing for the US economy,” he said.

Shares in Anglo-Swedish pharmaceutical firm AstraZeneca – which made a deal with Trump to lower drug prices and avoid tariffs over the weekend – initially rose on Monday morning, before falling back by 0.4%.

Fears were still running high in Asia, with main markets tumbling on Monday. Hong Kong’s Hang Seng index dropped by 2.3%, while the Taiwanese market fell by 1.4% and the Thai exchange declined by 2%. In mainland China, the Shenzhen exchange fell by 1.4% and the Shanghai market slipped 0.4%.

On Monday, Chinese foreign ministry spokesperson Lin Jian urged the US to promptly correct its “wrong practices” and said it would act to safeguard its interests.

Despite the trade tensions, Chinese exports bounced back in September, topping forecasts as it diversified its markets.

Chinese exports rose by 8.3% year on year last month, according to official customs data. This was the fastest growth since March, and beat a 6% increase forecast by economists polled by Reuters. It comes after a 4.4% increase in August.