Australian shares shot higher on Thursday to recoup part of their recent losses, after Donald Trump dropped a tariff threat used against European allies amid his pressure campaign to gain control of Greenland.

The de-escalation fuelled a rally in global sharemarkets that flowed into Australia, sending the benchmark S&P/ASX 200 briefly above the 8,860 point mark, before a slight easing.

The US president’s retreat once again rewarded dip buyers, who have ridden the “Trump Always Chickens Out” – or TACO – trade strategy that relies on the American leader backing down from tariff threats after declaring victory.

Trump has said he has a “framework of a future deal” on Greenland, without elaborating.

But, in an interview with Sky News on Wednesday, a member of Denmark’s parliament, Sascha Faxe, has suggested that the deal Donald Trump claims to have struck with Nato over Greenland is “not real”.

“The thing is, there can’t be a deal without having Greenland as part of the negotiations, first of all,” Faxe said. ** **Veteran financial markets commentator Michael McCarthy said while risk was “building up in the market, all the arrows are pointing up” after the latest easing of geopolitical tension.

“We’ve seen a number of things that in the past could have triggered a very significant correction in the equity market but investors have just shrugged it off,” said McCarthy, from online trading platform Moomoo.

McCarthy cites an outbreak of inflation, serious increase in geopolitical tensions, and risk of a sell off in US bonds as potential triggers for a sustained global equity correction.

A US bond sell off would signal investors have lost faith in US political and economic policies, with reverberations for global markets.

Chris Weston, the head of research at Melbourne-based financial firm Pepperstone, said investors will want to know more about Trump’s framework deal over Greenland’s future before completely discounting further risk in Europe.

“That said, it may not be entirely straightforward – many will want to see the devil in the detail of the deal and the finer details of any agreement, what is truly at stake, and how the deal is articulated from the European side,” Weston said.

Australia’s mineral-tinged share market has been helped by robust commodity prices, with iron ore demand proving resilient and gold and copper trading near record highs.

At the same time, sticky inflation and the growing prospect of a near-term interest rate hike has limited stock market gains.

The ASX momentum paused on Thursday after the release of an Australian jobs report that showed a surge in employment, fuelling the odds of a rate rise as early as next month.

Rising rates are generally bad for stocks, given borrowing costs increase and rival investments like bonds become more attractive.

Australia’s benchmark index was up about 0.6% in afternoon trading on Thursday, representing about $17bn in market value and recouping about half of its losses suffered over the past week.

The Australian dollar has hit a 15-month high against its US equivalent, trading near the US68c mark.