Barclays shares skyrocket as FTSE 100 bounces back from tariff shock

Market Bounce Back

Barclays FTSE 100 giant shares surged in early trading after President Trump's reversal of his 'Liberation Day' tariffs. The bank's shares rose over 20% at the open, settling to a 15% gain. The spectacular recovery erased the lender's recent losses, reducing its one-month loss to 3%. The positive market reaction to the tariff reversal underscores the sensitivity of financial shares to trade policy and geopolitical risk.

Effect of Tariffs

Barclays shares had taken a massive hit in the previous week, falling by nearly 10% after China imposed its first round of retaliatory tariffs on the US on Tuesday. Russ Mould, AJ Bell's investment director, stated, "In Barclays' case, its investment banking division is highly geared to the performance of the financial markets. Wild or falling markets will be likely to deter merger and acquisition (M&A) business and new market floats, two areas where there are big fees to be won."

Barclays' investment bank is now a key part of its business, contributing significantly to its profits. The investment bank, in 2024, registered total income of £11.85 billion, higher than the expectations of analysts at £11.7 billion. The bank's performance within this division matters because it is highly sensitive to market conditions and investor sentiment.

FTSE 100 Performance

The FTSE 100 increased over 5% on market opening, with banks some of the largest gainers. The 'Big Five' banks, including HSBC and Standard Chartered, were some of the biggest fallers last week due to their large presence in Asia, which was most impacted by Trump's tariffs. Bloomberg estimates suggested the stocks of large banks had lost over $700 billion (£544 billion) of market value in a single week.

The FTSE 100 bounce is reflective of the overall change in market sentiment following the tariffs rollback. Banks, particularly those with high international exposure, are deemed highly geared to global economic directions. Russ Mould added, "While Barclays and its peers were geared plays on economies and financial markets going south, they're likely to be geared plays on them if they reverse.".

Sensitivity to Geopolitical Developments

The bank's sudden share price volatility is a reflection of its sensitivity to geopolitics and trade policy. The initial 10% drop of the shares right after China's retaliatory tariffs has a direct bearing on the anticipated impact on its investment banking franchise, which supports the profitability of the bank. The subsequent 15% gain following the reversal of tariffs shows the quickness of market response to positive news, emphasizing the importance of stability in global trade relations for banks.

Investment Banking Segment

Barclays' investment bank has been a key driver of its earnings, and it has generated high revenues and fees from M&A deals and fresh market floats. The steering of the bank amidst turbulent market climates is most vital to maintaining its competitive edge. The 2024 financial report, which posted the investment bank's performance in excess of market analysts' predictions, underscores the importance of the segment and bank operational resilience.

Market Sentiment and Future Outlook

The FTSE 100's 5% rise, topped by Barclays, reflects a positive change in market sentiment. The 'Big Five' banks, including HSBC and Standard Chartered, have been particularly gored by the trade war as they have so much business in Asia. The market's reaction to the reversal of tariffs suggests these banks are seen as gauges of the well-being of world economies.

Russ Mould's comments highlight the dual role of banks such as Barclays: they are simultaneously a barometer of economic wellbeing and beneficiaries of market recovery. The potential for more M&A business and fresh market floats, fee-generative business, can also further propel Barclays' performance. But the bank and others will need to remain vigilant since the international trading environment still remains volatile.

Barclays' share price fluctuations because of trade policies illustrate the bank's sensitivity to global economic conditions. The bounce back from the tariff rollback, in addition to the strong performance of its investment banking division, positions Barclays for success in market recovery. However, the trade tensions and the threat they may pose to its overseas operations continue to be a leading risk factor. Investors will keep a close eye on any progress in the trade war and how it will affect the bank's future performance.