11:23 AM EDT, 04/08/2025 (MT Newswires) -- Markets are somewhat calmer early Tuesday as they await next steps in the trade war and absent fresh, material developments, said Scotiabank.

Stocks are firmer with the United States S&P up 3.5% and European cash markets gaining by roughly 3% across benchmarks, noted the bank. This follows an overnight rally that lifted equities in Tokyo by 6%, Hong Kong by 1.5% and mainland China by 0.75% to 1.5%.

Sovereign bonds are cheapening across North America and Europe, stated Scotiabank. U.S. Treasury yields are up by 6bps-8bps across maturities and Canadian yields are performing similarly. Gilts are bear steepening. Eurozone government bonds are mostly bear flattening with two-year yields leading the rise at +4-8bps.

Asia-Pacific bond yields also moved higher as they caught up to Monday's Western moves. The US dollar is retreating in broad fashion against most major crosses, although the euro is little changed. Oil and gold are slightly higher.

There is nothing material by way of overnight Monday calendar-based developments or developments on tap for Tuesday. The bank thinks some of the headlines from the U.S. administration on trade talks with countries like Japan and South Korea are playing a role in the equity tone, but Japan has said its willingness to talk is limited by its sense that it does nothing unfair and South Korea is headed for a presidential election in June.

The next moves in the trade war are focused on Wednesday, pointed out Scotiabank. By Wednesday, the U.S. will impose a 104% tariff, including the pre-existing 20% plus last week's 34% plus an additional 50% and call off any further trade talks if China doesn't reverse its retaliatory measures. China responded to this latest aggression by saying "The US threat to escalate tariffs on China is a mistake on top of a mistake. If the US insists on its own way, China will fight to the end."

So if the U.S. goes ahead on Wednesday, China will probably retaliate again, added the bank.

The European Union attempted to offer to eliminate bilateral tariffs on industrial goods if the U.S. did the same and the U.S. rejected the offer as insufficient, perhaps because of alleged non-tariff barriers and "crazy" demands such as dropping the value-added taxes that are obvious non-starters, said Scotiabank.

The bank advised the EU not to waste its time, as Canada learned from seeking to constantly negotiate only to get hit by tariffs on steel, aluminum, autos, lumber, non-CUSMA-compliant trade, and probably dairy and copper soon. By Monday, EU trade ministers were reportedly preparing to retaliate after giving limited time for the U.S. to reconsider which could be measured in days to weeks.