By Joe Stonor


European equity markets rallied Thursday as investors welcomed President Trump's reversal of tariff threats against eight European countries.

After a day of meetings at the World Economic Forum in Davos, Switzerland, Wednesday, Trump said in a Truth Social post that he agreed "the framework of a future deal" over Greenland with North Atlantic Treaty Organization Secretary-General Mark Rutte, and said that the 10% tariffs planned for Feb. 1 would no longer come into effect.

The news sent European equities higher. A basket of European stocks represented by the Stoxx 600 index climbed 1.1% in early afternoon trade, while major indexes in Germany, France and Italy all rallied above 1%.

The gains fell short of recouping all the indexes' losses this week, however. For instance, despite a strong open, the DAX traded around 1.7% below its Friday price.

Sectors that had sold off most steeply this week because of their higher exposure to potential tariffs--like luxury-goods makers, auto manufacturers, and chip companies--recovered strongly.

"This week has been an almost perfect example of the TACO [Trump Always Chickens Out] trade in action," Interactive Investor's head of investment Victoria Scholar said.

Volkswagen led automakers on the continent higher, gaining 4.5%, as others, including Porsche Automobile Holdings and Volvo, followed. The sector is among the most exposed to further tariffs. Porsche, for example, derives 30% of its revenue from the U.S., analysts at Morgan Stanley estimated.

Semiconductor stocks continued a rally that began in the U.S. Wednesday and carried forward in Asian trade, as Suss Microtec and Infineon surged 5.3% and 4.3%, respectively.

Many stocks still trade below their prices before Trump's threats over the weekend, however, suggesting uncertainty remains among investors given the lack of detail on the Greenland framework deal. LVMH, widely considered a bellwether for the luxuries sector, last traded around 2.75% below its Friday close.

Sectors that had benefited from the uptick in trans-Atlantic trade tensions fell back. Precious metals miners like Fresnillo and Antofagasta declined after gold slipped from record highs, while defense stocks that gained on geopolitical tensions also retreated.

Some analysts cautioned that Europe isn't out of the woods yet and that heightened geopolitical risks might continue to weigh on equities.

"The existential threat to NATO still exists, and Trump could turn on his allies in the future. For now, that risk has been kicked down the road, but the fact that the gold price remains elevated suggests that there is still demand for safe havens," XTB research director Kathleen Brooks said.

The lack of clarity over the structure of the deal Trump heralded could also limit TACO trade gains, Swissquote senior analyst Ipek Ozkardeskaya said.


Write to Joe Stonor at josephmichael.stonor@wsj.com


(END) Dow Jones Newswires

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