U-turn after Greenland ‘deal’ revives TACO trade talks

Trump’s latest retreat from the trade war has fueled a rally in international assets and fueled investor talk of “TACO” – “Trump Always Chickens.”

Speaking with CNBC’s Joe Kernen at the World Economic Forum in Davos, Switzerland. Wednesday In the evening, Trump said he was withdrawing tariffs on European allies because there is now a “concept of a deal” on Greenland, after weeks of demanding that it be annexed by the United States.

They threatened to build 10% tariffs at eight European countries it was against his push to “buy” the Arctic island. From June 1, they would rise to 25%.

Europe swore an “incomplete” response to any new rates and stocks, bonds and the US dollar staged There was a sharp sell-off on Tuesday as investors panicked about the possibility of a new trade war.

But Wall Street’s major averages jumped after Trump’s withdrawal on Wednesday, with stock futures pointing to an extension of those gains on Thursday morning. The rebound has lifted global markets, shares have been listed Europe and Asia Regional markets also rose when they reopened on Thursday.

Amidst the global rally, one of the main investment tools in 2025 has entered the new year: the “TACO” trade.

The word refers to the president’s history of threatening to impose steep tariffs only to ease, delay or eliminate them. It came up last year after Trump announced a “freedom day” of tariffs in April, but when he eventually backed down, investors were skeptical of his actions. Market reactions to subsequent US trade policy announcements were muted or the recovery was faster.

Russ Mold, investment director at AJ Bell, compared today’s market changes to last year.

“Donald Trump’s TACO bell has rung again, sending financial markets into a frenzy,” he said in a Thursday morning note. “Trump has tried to walk away from his threats … April 2025 and now have a lot of similarities with the market volatility on Independence Day.

“In both cases, Trump took an aggressive stance, then backed off after the financial markets were shaken.”

However, Mold said there are still some cautionary signs that markets appear to be rebalancing rather than “shifting into high gear”.

“Gold’s rally paused for breath, although there was no significant sell-off in the metal,” he said. “This shows that investors are eager to keep elements of safety in their portfolios. Healthcare and tobacco stocks were also in fashion, which is usually what you would expect on a worrisome day, not when markets are up.”

Alan Sio, co-head of emerging market corporate debt at asset management giant Ninety One, told CNBC on Thursday that the TACO sentiment was a driver of the post-Liberty Day rally in risk assets and is still affecting markets.

“We don’t have any evidence yet that this has changed, but in the last 2 days in Davos, I think we have seen from the rhetoric of global leaders that something has hardened at the policy level, perhaps changed permanently.”

“Even if reality remains TACO in the near term, we may now see a permanent change in underlying behavior, but to be fair, it’s too early to tell given how quickly recent events have moved.”

Paul Surgi, managing director and head of investment management and proposition at London-based wealth management firm Kingswood Group, said that while markets reacted negatively to some of the White House’s policies, those reactions were generally muted since Independence Day.

“The initial position is that the worst-case scenario is that a deal is announced later — as we’ve seen with comments on Greenland,” he said in an email to CNBC. “So far, few details have been released regarding the ‘main’ deal. By the way, the markets responded positively with a conciliatory tone.”

Tony Meadows, head of investments at BRI Wealth Management, was skeptical of the TACO trade, urging investors to wait for details on the Greenland “deal” and Europe’s response.

Meadows said markets were initially “demanding some or all of the fall” before Trump announced the potential Greenland deal.

“There is relief, but it’s just one of many areas where the US president is trying to shake the tree to see what he can get for America based on his agenda of resource imperialism,” he added.

He noted that markets are following the White House’s domestic policy as presented hat at credit card rates.

“Investors are (now) trying to get back to digesting the impact of the US earnings season,” he said. “But that will only last until Trump’s next announcement.”