A US federal court ruling on Wednesday that blocked President Donald Trump’s controversial “Liberation Day” tariffs offered a brief reprieve to markets rattled by months of trade policy turbulence.
Investors cheered the legal development, though analysts warned that the long-term outlook remains clouded by continued legal appeals and growing fears of policy paralysis.
The US Court of International Trade prevented the sweeping tariffs from taking effect, prompting a jump in Asian stocks and Wall Street futures.
The dollar also strengthened against safe-haven currencies, suggesting a modest return in investor confidence.
Yet even as equity benchmarks rebounded, economists cautioned that the pause may be fleeting, with the Trump administration already appealing the decision.
Markets rally on ruling and Nvidia earnings
Asian shares surged Thursday morning, led by South Korea’s Kospi and Japan’s Nikkei, both up more than 7% from the day Trump announced the tariffs nearly two months ago.
Gains were also supported by robust earnings from artificial intelligence bellwether Nvidia, reinforcing optimism in tech-led growth.
The US dollar index, having declined 4% since the announcement, showed signs of recovery following the court decision.
The UK’s FTSE 100 blue chip index ticked up 0.1% before entering the red, while the German Dax rallied 0.9%. France’s CAC 40 rose 1%.
“It’s long been suggested that the emergency powers Trump has used to implement tariffs were unconstitutional and that the power to enact tariffs sits with Congress,” said Kyle Rodda, a senior financial analyst at Capital.com in a Reuters report.
“Should the markets get their way, the courts could delay and then deny these tariffs, removing one massive risk and undoubtedly stoking risk appetite.
Legal process deepens policy uncertainty
While the initial reaction was positive, strategists were quick to highlight that the legal battle is far from over.
With the case now likely heading to the Supreme Court, Trump’s push to reshape US trade policy remains in motion.
The administration maintains that its actions fall within emergency executive powers, while critics argue only Congress can impose such sweeping levies.
Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities said that knee-jerk reaction for equities to rally and bond yields to back up on the tariff pause makes sense.
However, with tariffs now in the appeal process and likely heading to the Supreme Court, uncertainty is back. Expect to see this lead to delays in investment and hiring.
“The pause also puts tariff revenue at risk which could bring deficit issues back on the radar.” he said.
Goldman Sachs analysts warned that the ruling does not block sector-specific tariffs and noted that other legal mechanisms remain available for the White House to pursue.
“This ruling represents a setback for the administration’s tariff plans and increases uncertainty but might not change the final outcome for most major US trading partners,” analyst Alec Phillips wrote in a note.
Uncertainty to take economic toll on firms in longer-term
The back-and-forth nature of Trump’s trade actions is increasingly seen as corrosive to long-term economic planning.
Ultimately, this trade uncertainty is toxic to investment and economic growth, driving chief executives and policymakers to put off major decisions, said Kei Okamura, a portfolio manager for Neuberger Berman in Tokyo.
“This stop and go is not helpful for businesses that need to make decisions that can take several years, even a decade, to implement,” Okamura said.
Central banks, too, may be affected.
The prolonged uncertainty from Wednesday’s ruling, however, will take an economic toll on firms longer-term, said David Chao, global market strategist for Asia Pacific at Invesco.
Decision to fuel temporary risk-on sentiment in equities
In response to the volatility, investors have shortened their investment horizons and tilted toward tactical moves.
“Volatility and policy reversals are what define this trading environment and investors are reacting in kind,” said Ray Sharma-Ong, head of multi-asset investment solutions for Southeast Asia at Aberdeen Investments.
“Trade and portfolio strategies have shifted toward shorter investment horizons,” he said.
“Portfolios have leaned more toward tactical trades, with positions focused on key catalysts and events linked to Trump’s policies.”
Gary Ng, senior economist at Natixis, said the decision will fuel temporary risk-on sentiment in equities and lower bond yields as the market dials back inflation expectations driven by tariffs.
However, this is not the end of the tariff story. There is no clarity as the legal battle will continue and it does not change the fact that Trump will find ways to reshape global trade order.
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