By Lawrence Delevingne and Samuel Indyk
BOSTON/LONDON (Reuters) -Some trade policy relief and strong bank earnings helped push Wall Street up slightly on Tuesday, while U.S. government bonds and the dollar were steady, after U.S. President Donald Trump touted possible tariff changes on autos.
Trump said on Monday he was considering a modification to the 25% tariffs imposed on foreign auto and auto parts imports from Mexico, Canada and other places. That followed Friday's move to exempt smartphones, computers and some other electronics from Trump's "reciprocal" tariffs.
The main U.S. stock indexes ticked higher on Tuesday, with Bank of America, Citigroup and Wells Fargo gaining after the trio of banking giants posted strong profits for the first quarter. The broad gains followed Monday's advance on Wall Street, its second straight daily rise for the first time since Trump announced his reciprocal tariff plan on April 2.
The Dow Jones Industrial Average rose 0.34%, the S&P 500 added 0.51%, and the Nasdaq Composite gained 0.54%.
"The countertrend rally is holding," Darrell Cronk, president of the Wells Fargo Investment Institute, wrote in a note on Tuesday. But Cronk added that the "final tariff menu remains unsettled" and will decide if there's a recession or not.
Investors took whatever good news they could get after the recent heavy selling across markets, and pushed shares higher.
The pan-European STOXX 600 index rose 1.6% on Tuesday, led by the autos and parts sector whose gauge jumped about 2%.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan gained 1.1%. Japan's Nikkei rose 0.8%, with shares of auto companies like Toyota and auto parts maker Denso among the top gainers.
Analysts remained cautious, however, as uncertainty over Trump's trade policies, and his constant back-and-forth on tariffs, continued to cast a cloud over markets and the global economic outlook.
"Headlines will be volatile near term," John Belton, a portfolio manager at Gabelli Funds, said in an email. "We could see some start/stop action as the administration negotiates arrangements with countries and industry groups. Investors should focus on fundamentals."
BOND YIELDS STEADY
U.S. Treasuries held on to most of Monday's gains on Tuesday after a manic selloff last week that led to the largest weekly increase in borrowing costs in decades. Bond yields move inversely to prices.
The benchmark 10-year yield was little changed at 4.349%, having fallen nearly 13 basis points in the previous session.
Some analysts said comments from Federal Reserve Governor Christopher Waller contributed to the fall in yields. He said on Monday that the Trump administration's tariff policies were a major shock to the U.S. economy that could lead the Fed to cut rates to head off recession even if inflation remained high.
Atlanta Fed Bank President Raphael Bostic, meanwhile, suggested the U.S. central bank should stay on hold until there is more clarity.
Markets are now pricing in about 83 bps worth of monetary policy easing by the end of the year, with most expecting the Fed to hold rates next month.
The dollar held steady on Tuesday, trading near a three-year low against the euro and a six-month trough against the yen, as investors trying to make sense of the constant changes to tariffs remained wary of U.S. assets. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, ticked up 0.14% on the day.
"The U.S. exceptionalism narrative that had previously underpinned the surge in U.S. equity markets over the past couple of years, and boosted the dollar, has lost much of its shine," said Jonas Goltermann, deputy chief markets economist at Capital Economics.
Oil prices dipped after the International Energy Agency cut its oil demand forecast, having earlier been boosted by the latest tariff exemptions floated by Trump. U.S. crude fell 0.6% to $61.16 a barrel and Brent dropped to $64.50 per barrel, also down 0.6% on the day.
Spot gold rose 0.4% to near its record high at $3,221 an ounce. [GOL/]