A federal appeals court temporarily reinstated the most sweeping of Donald Trump's import tariffs late on Thursday.
Allowing the stay while the case progresses, the court ordered the plaintiffs in the cases to respond by June 5 and the administration by June 9. Trump has promised to take the matter all the way to the Supreme Court.
Thursday's rally in stocks and the dollar faded quickly, with many investors convinced the administration would seek other routes to impose the levies even if it loses its case.
The whole episode raises as many questions as answers, not least regarding when tariffs will be imposed and which ones will eventually come to pass. This heightens business uncertainty as much as it offers any marginal relief.
Countries in bilateral trade talks may be emboldened to avoid making concessions until there is more clarity around the legal issue, meaning we could see a shortening of the already narrow six week negotiating period left before July 9's re-imposition of 'reciprocal tariffs'.
Meanwhile, there are also questions over the U.S. fiscal bill now heading through the Senate, including how much delayed or reduced tariffs will impact revenue estimates and deficit calculations.
What's more, investors are increasingly concerned about provisions in the bill - namely Section 899 - that allows the administration to impose taxes of up to 20% on foreign asset holdings. Some fear this could cause the tariff war to morph into a capital war, unnerving overseas investors anew.
Resorting to non-tariff threats would only up the ante in tough trade talks with Europe, which is already countering with threats against U.S. tech firms.
On top of all this, we have next month's annual Treasury review of overseas currency manipulation.
In short, we could soon seen more trade weapons drawn into the fray.
There's even growing angst overseas that foreign holdings of gold at the U.S. central bank could be at risk.
But amid all the speculation, U.S. Treasuries rallied sharply on Thursday.
Some of that was down to signs of weakening economic activity, with weekly jobless claims rising, pending homes sales weakening and first quarter GDP revisions cutting consumer spending estimates and showing a drop in corporate profits.
That was enough to nudge Federal Reserve easing hopes back up, with futures now pricing in two full rate cuts by yearend.
The drop in Treasury yields was helped by a robust auction of 7-year notes, which Morgan Stanley said left primary dealers with just 4.8% of the paper, the lowest primary dealer takedown on record for any Treasury auction.
Amid all this, Trump called Fed Chair Jerome Powell to the White House on Thursday for their first face-to-face meeting since he took office in January. He told the central bank chief he was making a "mistake" by not lowering interest rates.
Underscoring its independence, the Fed issued a statement after the meeting saying it "will set monetary policy, as required by law, to support maximum employment and stable prices and will make those decisions based solely on careful, objective, and non-political analysis."
The April reading for the Fed's favored inflation gauge is due for release on Friday.
Ahead of the open, U.S. stock futures were back slightly in the red, 10-year Treasury yields flirted with their lowest in a fortnight and the dollar was firmer after Thursday's sharp reversal.
Elsewhere, European stocks were higher, but Japan's Nikkei relapsed more than 1%. Tokyo core inflation readings for May came in higher than forecast at 3.6%, the most in two years, upping speculation that there will be more Bank of Japan interest rate hikes ahead.
European inflation updates for this month were much softer, buoying hopes of further European Central Bank easing as the ECB gets set to meet again next week.
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