A muted stock market reaction in London followed the US Court of International Trade ruling that Donald Trump's trade tariffs were illegal.
Saying the President had overstepped his powers by implementing the measures without the approval of Congress, the court imposed a permanent injunction on the blanket 10% tariff orders issued by Trump in January, plus the 20% tariff on imports from China and some of the new 25% tariff on Canada and Mexico.
The Trump administration immediately appealed the decision, with the Justice Department issuing a filing with the US Court of Appeals.
In London, the FTSE 100 fell 0.1%, though in Frankfurt and Paris there were gains for the likes of Adidas, Daimler, Airbus, Stellantis, Kering and Infineon that lifred the DAX and CAC indices.
US futures surged, however, with the S&P 500 and Nasdaq set for jumps of 1.2% and 1.7% on Thursday.
While a "pretty seismic development", market gains have been "measured rather than blockbuster", observed AJ Bell investment director Russ Mould.
He says this "reflects a healthy level of scepticism over whether this can truly rein in the Trump administration".
Furthermore, Barclays macro analyst Ajay Rajadhyaksha said the Manhattan trade court's decision is likely to prolong uncertainty, with a "period of 4-8 weeks when tariff policy is stuck in limbo".
There were suggestions that the court's decision will give Trump "a face-saving reason to walk away from the entire tariff approach; blame the courts, argue that they tried, and just turn the page on tariff policy. We don't agree," said Rajadhyaksha.
Trek to Supreme Court expected
The White House's appeal is "likely" to make it to the Supreme Court, he said, where six of the nine justices are Republican appointees, who know well that the reciprocal and fentanyl tariffs were at the heart of the Trump policy approach.
Analyst Joachim Klement at Panmure Liberum predicted the legal trek to the Supreme Court will see the decision potentially "crushed under the Unitary Executive Theory of constitutional law”, which asserts the US President holds all executive authority of the state.
And there’s a Plan B waiting in the wings, he says, that Trump could simply reimpose the same tariffs under Section 301 of the 1974 Trade Act, just like the Biden administration did in the past.
Without the tariffs, there would be new questions about how Trump's 'big, beautiful' tax cuts bill will be funded, given revenue from tariffs was supposed to contribute on this front.
If the tariffs were to be cancelled altogether, said Klement, "it would be bad news for Treasuries since it would reduce a significant source of income and widen the budget deficit over the coming decade".
It was important to note, he added, that not all tariffs are affected by this ruling, but only the ones that were imposed under the International Emergency Economic Powers act.
Tariffs imposed under the Trade Expansion Act are unaffected, which means that tariffs on steel and aluminium, autos, semiconductors and threatened tariffs against pharmaceuticals are not in scope of Wednesday night's ruling.
Either way, an angry response from President Trump is "all but guaranteed, so keep the popcorn handy", said analyst Chris Beauchamp at IG.
Market reaction in New York, Tokyo and London
The market reaction was muted in Europe, with US futures surging and the US dollar one of the top performers, noted Kathleen Brooks, head of research at XTB.
"The problem for the bond market is that President Trump’s tariffs were linked to the extension of the tax breaks included in the US budget bill that is currently with the Senate," she said.
"Without the tariff levies, can the US extend tax cuts without blowing the deficit? This is what investors will have to grapple with today."
Selling the dollar was one of the biggest ‘tariff trades’, Brooks noted, so with tariffs in jeopardy, an unwind of this position is "to be expected".
The legal ruling also put more pressure on Japanese bonds, with the 30-year bond yield having already risen by 60 basis points in three months, eroding the yen’s safe haven status.
"The news that a US court has ruled that tariffs are illegal has put upward pressure on global bond yields," Brooks explained.
"US bonds are taking the brunt of the bond selling on Thursday, which is to be expected, since a reversal on tariffs could reduce the US tax take.
"For now, this is boosting the dollar, but we have already seen a reversal in the dollar index, and if yields continue to rise then we expect the dollar to come under pressure."
Brooks said UK stock indices not joining in the rally, with a rise in oil prices not impacting UK stocks, could be "a sign that stock markets in countries who did manage to score trade deals with the US in recent weeks could be at a disadvantage if tariffs are reversed".