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As i write (2 pm, 10 April) the Barclays (LSE:BARC) share price is up 11% on the day. It was up 25% in early trading. The move upwards reflects Donald Trump’s decision to put a pause of higher tariffs on 75 countries. But why is the jump so pronounced?
Back to the base case
Before Trump’s tariff were announced on ‘Liberation Day’, the base case forecast anticipated something like the 10% global tariff we see today. As such, the huge tariffs implemented on trade partners such as Vietnam, China, and the European Union were something of a surprise. This resulted in a global sell-off.
So why did Barclays, a UK-focused bank, slump on Trump’s tariffs? Well, analysts forecasted that the severity of these tariffs would force the US economy and much of the global economy into a recession. This isn’t good for the vast majority of companies. But it’s particularly bad for banks that typically reflect the health of an economy.
As such, Trump’s 90-day pause on these higher tariffs see a return of the base case — a 10% global tariff — with the exception of the huge duties implemented on China.
Out of the woods?
Does this mean a return to some sort of normality? Absolutely not. Despite the pause, Goldman Sachs sees the US economy growing by just 0.5% in 2025. Moreover, it still sees a 45% chance of recession within the next year. That’s quite an incredible turnaround from the forecasts at the beginning of the year. Nobody really expected a US growth slowdown.
What’s more, the huge gains on Thursday (10 April), are likely driven by short covering. This occurs when investors who had previously bet against the stock rush to buy shares to close out their positions, often in response to unexpected positive news or upward momentum.
The resulting surge in demand can significantly inflate the share price in a short period, amplifying gains beyond what fundamental developments alone would justify.
Moreover, we’re just entering earnings season where we’re likely to see reduced guidance from companies, as it’s simply too hard to forecast and it’s possible that the first quarter hasn’t been a stellar one. With plenty of uncertainty in recent months, some customers and companies may have cut back on spending. Some analysts suggest the US may already be in recession.
Why is this important for a UK-focused bank? Well, while Barclays does have some US operations, it’s worth remembering that old saying: “When the US sneezes, the world catches a cold”.
The bottom line
Personally, I’m being cautious during this period of volatility. I believe we may see more US recession forecasts that will likely push stocks lower. As such, I’m not planning to add to my Barclays holding in the immediate future.
However, the environment’s changing quickly and I appreciate the stock’s still cheap on a price-to-earnings basis compared to its US-listed peers.
