Market snapshot: is the TACO trade alive and well?
After getting caught up in the US crossfire just as the UK market was packing up for a two-day break, stocks are now responding to events over the weekend. ii's head of markets has the latest.
13th October 2025 08:22
by Richard Hunter from interactive investor
If investors had been hoping for a reason to let some air out of the tyres after a valuation-stretching run, the US President duly delivered.
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Donald Trump's latest salvo reignited the war of words with the Chinese as he threatened further 100% tariffs given their current position on rare earth metals and was a stark reminder of the ongoing fractious relationship between the world’s two largest economies. Large technology shares found themselves at the eye of the storm given a large exposure to and relationship with the Chinese as customers, sending the Nasdaq some 3.6% lower, led by declines of 5% for NVIDIA Corp (NASDAQ:NVDA) and 8% for Advanced Micro Devices Inc (NASDAQ:AMD).
The President’s propensity to shoot from the hip unsettles the investment environment, even though some are already speculating that the TACO trade (Trump Always Chickens Out) is alive and well. His subsequent comments on social media over the weekend were decidedly more conciliatory, and at this very early stage, Dow futures are pointing to a brisk recovery which would lessen the blow of Friday’s bruising session.
The new wave of volatility comes at a time when there is no obvious current resolution to the government shutdown, which is leading to a data vacuum which severely limits visibility on the current state of the US economy. A separate report indicated that consumer sentiment remains in relatively poor health, while there is added emphasis on the barrage of company reports this week for some direction. The banks will be front and centre, with updates from Citigroup Inc (NYSE:C), The Goldman Sachs Group Inc (NYSE:GS), JPMorgan Chase & Co (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS).
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Unsurprisingly, the gold price went on a new tear following the initial announcement as investors sought haven destinations, lifting its rally to 54% in the year to date. US market weakness shaved gains for the year so far for the major indices, although spikes of 6.9%, 11.4% and 15% for the Dow Jones, S&P500 and Nasdaq respectively remain in place.
As expected, Asian markets were shaken by the developments after what had been a period of relative calm. The declines came despite reports from China that its global exports rose by 8.3% in September, the strongest number for six months and proof positive that the country is finding sales in other markets to compensate from any US losses, where exports fell by 27% year-on-year. Exports of rare earths tellingly have fallen by 31% since August, which may well have prompted the sharp response from the US which led to the most recent bout of market volatility.
The FTSE100 edged higher in opening trade, having been caught in the US crossfire on Friday which came as European markets were closing. The new gold price surge inevitably led to further spikes in the share prices of the likes of Fresnillo (LSE:FRES) and Endeavour Mining (LSE:EDV), while the resilient economic news emanating from China underpinned the likes of Burberry Group (LSE:BRBY) and Prudential (LSE:PRU).
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Lloyds Banking Group (LSE:LLOY) shares rose despite the announcement of a further £800 million provision relating to the motor finance redress scheme, as investors chose to view the news positively since it removes a plank of uncertainty with regard to the eventual cost for the bank.
The measured recovery leaves the premier index ahead by 15.5% in the year to date and still the source of investment interest. Its exposure to the likes of the defence and mining sectors have been a particular boon in this environment, while the banking sector could be set for further gains depending on both the performance of the US majors this week as well as their own third quarter updates, which begin next week.
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