European Stocks Rebound 2.7% After Trump Tariff Shock

European stocks experienced a rebound on Tuesday, ending a four-day losing streak that was triggered by the tariff policies announced by former U.S. President Donald Trump. The STOXX Europe 600 index closed 2.7% higher, with the financial and industrial sectors leading the gains. The telecommunications sector, often seen as a bond proxy, lagged behind. The Greek stock market outperformed the broader European market.

The rebound came as investors sought opportunities to buy on the dip, while awaiting clarity on Trump's trade policies. However, market sentiment remained cautious, with investors keeping a close eye on whether Washington would engage in negotiations on some of the more aggressive tariff measures. The market's volatility has been driven by the ongoing trade tensions, which have led to significant losses in global stock markets. Despite the recent rebound, uncertainty persists, and investors are still grappling with the potential impact of further escalation in the trade war.

The financial and industrial sectors have been particularly resilient, with banks and industrial companies benefiting from the rebound in risk appetite. However, the telecommunications sector, which is often seen as a defensive play, has struggled to keep pace with the broader market. Investors are also keeping a close eye on the bond market, where yields have been rising in recent weeks. The increase in yields has put pressure on stocks, as higher borrowing costs can weigh on corporate earnings. However, the recent rebound in stocks has helped to ease some of the pressure on the bond market.

Despite the rebound, the European stock market has only recovered a portion of its losses. The tariff measures announced by Trump on April 2 resulted in a significant drop in the market, with the benchmark index losing approximately 17 billion dollars in market value. The 14-day relative strength index (RSI) for the STOXX 600 index is well below 30, indicating that the market is in an oversold state.

In response to Trump's tariff measures, trade ministers from various European Union countries have hinted at being prepared to take comprehensive countermeasures, including the possibility of taxing digital companies. Market concerns are growing that the escalating trade war could lead to a recession in the U.S. economy, which would severely impact European markets, particularly the banking, energy, and financial sectors. Investors are trying to determine whether the market has hit bottom or if further declines are imminent.

"The current situation is so volatile that trying to predict what will happen next is meaningless," said Ian Lance, a fund manager at Redwheel. "However, we are actively looking for buying opportunities. Sectors that we might have previously excluded due to valuation reasons could suddenly become attractive."

Overall, while the rebound in European stocks is a positive sign, market sentiment remains cautious. Investors are still grappling with the uncertainty surrounding Trump's trade policies. The coming weeks will be crucial in determining whether the recent rebound can be sustained or if further volatility is on the horizon.