ORLANDO, Florida, May 13 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Risk assets extend gains

Stocks, oil and bond yields rose on Tuesday, lifted by the

optimism surging through markets that the worst of the global

trade crisis is past and that the growth outlook is much

brighter than it looked only a few days ago.

In my column today I look at the market and economic chaos

sparked by U.S. President Donald Trump's 'Liberation Day' tariff

announcement and ask: was it worth it? More on that below, but

first, a roundup of the main market moves.

I'd love to hear from you, so please reach out to me with

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If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. Trump's tariff blitz yields deals but misses

global

trade fix

2. 'Tariff Laffer Curve' reins in trade agenda: Mike

Dolan

3. ANALYSIS-US tariff pause on Beijing puts pressure

on

'China-plus-one' countries

4. Forget Trump. A UK deal with the EU is what

matters

5. INSIGHT-China's AI-powered humanoid robots aim to

transform manufacturing

Today's Key Market Moves

* The S&P 500 and Nasdaq extend their rally, led by

energy

and tech. The S&P 500 is up 0.6%, the Nasdaq 1.6%. Weakness in

healthcare drags the Dow lower.

* Germany's DAX rises for a fourth day, edging back up

toward the

previous day's record high. It has now risen 13 out of the last

15 sessions.

* Long-dated U.S. Treasury yields rise by up to 5 bps, with

the

10-year yield climbing back above 4.50% for the first time in a

month.

* Oil rises 2.5%, its fourth daily gain in a row.

Brent

and WTI futures have gained around 10% in those four days.

* Sterling is the biggest gainer in G10 FX, rising

1% to

$1.33 following hawkish comments from BoE chief economist Huw

Pill.

No 'trade truce' hangover, party continues

There was no hangover for world markets on Tuesday from the

previous day's trade-fueled euphoria. Indeed, the party

continued as stocks and bond yields climbed higher, and

volatility declined further.

The wave of relief that swept through world markets on

Monday following the U.S.-China 'trade truce' was compounded on

Tuesday by receding U.S. 'stagflation' fears after April

inflation figures came in softer than economists had expected.

Consumer prices rose at a 2.3% annual pace in April, the

smallest gain since February 2021 and a sign that the Federal

Reserve is still well-placed to deliver gradual interest rate

cuts later in the year.

The medium-term outlook for markets is still unclear.

Uncertainty surrounding the path for tariffs, growth, and

inflation this year is still high.

But that's for another day. The last 48 hours have given

some powerful rocket fuel for risk assets - a surprisingly rapid

de-escalation in U.S.-Sino trade tensions, waves of upward

revisions to Chinese and U.S. growth forecasts, and now the

tamest U.S. inflation in over four years.

The global inflation picture was also burnished on Tuesday

by figures from India that showed consumer prices in the world's

fifth-largest economy rose last month at the slowest pace in

nearly six years.

Of course, these are backward-looking numbers and

tariff-affected inflation rates in the coming months will likely

be higher. But they're still positive for risk appetite, and

investors are willing to look on them favorably for now.

Optimism on trade is running high. In Saudi Arabia on

Tuesday, U.S. President Donald Trump secured a $600 billion

commitment from the oil powerhouse to invest in the United

States; a number of U.S. technology firms, including Nvidia and

Advanced Micro Devices, announced artificial intelligence deals

in the Middle East; and China has removed a ban on airlines

taking delivery of Boeing planes.

Sentiment toward China continues to improve, with several

economists revising up their growth forecasts since the

U.S.-Sino trade truce. On Tuesday, the yuan appreciated to its

strongest level against the dollar since mid-November on the

onshore and offshore spot markets.

What was the point of April's market chaos?

The fog of uncertainty created by U.S. President Donald

Trump's trade war is suddenly lifting, although doubts over its

longer-term economic impact will linger. As will another

question: What was the point of all that 'Liberation Day' chaos

and confusion?

Trump, a consistent advocate of tariffs since the 1980s,

made it very clear during his election campaign that he intended

to significantly raise import levies. As the self-styled 'Tariff

Man,' he vehemently argued that tariffs will help raise federal

revenues, revitalize U.S. manufacturing, and reduce the

country's yawning trade deficit.

One can argue the economic merits of his agenda, but no one,

in good faith, can express surprise that he did exactly what he

said he would do. But even some of Trump's ardent backers are

questioning the strategy and implementation.

Was the aim to whip up economic and market chaos to gain

maximum leverage over America's trading partners and thereby

secure the most favorable terms for Washington in subsequent

trade talks?

Maybe. Short-term havoc was certainly wreaked, with some $6

trillion wiped off the value of U.S. stocks in the three days

after 'Liberation Day.' But now deals are getting done and all

those losses have been erased - except, of course, for investors

who got spooked and sold.

But after all that, it's unclear whether the tariffs that

will result from these deals - which will likely be much lower

than the extreme figures put forward a few weeks ago - will be

significant enough to move the dial meaningfully on the U.S.

trade deficit.

And on the fiscal side, all tariffs announced so far this

year are forecast to raise $2.7 trillion in federal revenue over

the 2026-35 decade, up from an estimated $2.4 trillion before

the U.S.-China 'truce' in Geneva, according to Yale Budget Lab,

which pointed out that sky-high tariffs were far from 'revenue

optimal.' Was the turbulence of the last several weeks worth an

extra $30 billion a year, or 0.1% of GDP?

Of course, $2.7 trillion is not to be sniffed at, but it

comes at a cost. Yale Budget Lab also estimates tariffs will

knock 0.7 percentage points off real U.S. GDP growth this year,

and in the long run the U.S. economy will permanently be 0.4

percentage points smaller. The price level of goods across the

country will be permanently higher too, economists reckon.

Estimates vary, but the general view is that the global

average effective tariff rate will be somewhere in the 13-18%

range, down 10 percentage points from before the weekend truce

but still the highest since before World War Two, and

significantly higher than 2.3% at the end of last year.

Meanwhile, U.S. consumer and business confidence has slumped

to some of the lowest levels on record, and consumer inflation

expectations are the highest in decades. These indicators may

improve in the months ahead, but much spending and investment

has been put on hold due to the uncertainty and likely won't be

switched back on so quickly.

LASTING DAMAGE

Perhaps most importantly, the damage done to U.S.

credibility hasn't vanished simply because asset prices have

rebounded.

Remember the methodology behind the Liberation Day figures,

which saw some of the highest duties slapped on the world's

poorest countries and tariffs imposed on frozen islands largely

inhabited by penguins? This was widely ridiculed and called into

question the seriousness of Trump's team, as have many of the

other unorthodox policies the administration has been pursuing.

Faith in America as a reliable partner has clearly been

diminished. As HSBC currency analysts reminded readers on

Tuesday, "Trust takes years to build, seconds to break and

forever to remake."

The administration appears to be trying to repair some of

that reputational damage. It's notable that Treasury Secretary

Scott Bessent and Trade Representative Jamieson Greer led the

delegation in Geneva this weekend rather than tariff hardliners

like Commerce Secretary Howard Lutnick and Office of Trade and

Manufacturing Policy director Peter Navarro.

But fully restoring U.S. credibility won't be a quick fix.

And the long-term consequences for U.S. rates, the dollar and

U.S. assets overall could be meaningful.

So if we consider where we are relative to a no-tariff

scenario, U.S. growth will likely be slower, prices will likely

be higher, and uncertainty will run much deeper. But would these

costs be so burdensome had the administration taken a more

pragmatic, less confrontational approach from the start?

The wounds will heal, but the scars may last a long time.

What could move markets tomorrow?

* India wholesale price inflation (April)

* Germany CPI inflation (April, final)

* Bank of England Deputy Governor Sarah Breeden speaks

* Federal Reserve Vice Chair Philip Jefferson speaks

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.