Financial Markets React to Trump's Early Trade Moves

As President Donald Trump's second term commenced, financial markets faced an initial reminder of his trade agenda. While relief washed over markets initially due to the lack of sweeping tariffs, unease emerged among some as Trump threatened to impose levies on Mexico and Canada within weeks.

Market Swings

The US dollar initially opened lower before surging upon Trump's threat of tariffs as high as 25% on Canadian and Mexican imports from February 1. US stock futures fluctuated between gains and losses as traders pondered the potential inflationary impact of these limited pledges.

In the absence of announcements regarding China, Chinese stocks rallied, but analysts cautioned against drawing hasty conclusions based on Trump's first day in office. The lack of a comprehensive narrative on trade restrictions underscored the potential volatility in financial markets as Trump embarked on his second term.

Currency and Yield Shifts

The Canadian dollar and Mexican peso both experienced sharp declines of up to 1.4% following Trump's tariff threats. Bloomberg's dollar gauge climbed 0.5%. Treasury 10-year yields dropped 9 basis points to 4.54% due to reduced inflation expectations resulting from the absence of sweeping tariffs.

Global Impact

European stock futures fell, indicating potential losses in regional equities. Investors had been closely monitoring the potential for executive orders from the White House after Trump expressed his intention to prioritize his "America First" agenda.

Targeting China?

While avoiding new China tariffs, Trump directed his administration to address unfair trade practices globally and evaluate China's compliance with a deal reached during his first term. Analysts anticipate that China could face even higher tariffs in the future, fueling concern among investors.

Market Experts Weigh In

Analysts provided their perspectives on the situation:

* Christopher Wong, OCBC Bank Singapore: Offshore yuan unlikely to appreciate significantly or breach new lows until clarity on US trade policies emerges.
* Charu Chanana, Saxo Markets: Tariff respite was short-lived, but suggests negotiations may continue with China.
* Kinger Lau, Goldman Sachs: China may be able to absorb tariffs as low as 20 percentage points, mitigating their impact.
* Fiona Lim, Malayan Banking: China's reaction and potential frictional trade policies will be important factors to monitor.
* Philip McNicholas, Robeco Singapore: China remains a potential target for tariffs, putting upward pressure on USD/CNH.

Key Market Moves

* Stocks: S&P 500 futures slightly unchanged, S&P/ASX 200 futures down 0.1%
* Currencies: Bloomberg Dollar Spot Index up 0.5%, euro down 0.5% to $1.0368, Japanese yen up 0.1% to 155.46 per dollar
* Cryptocurrencies: Bitcoin down 1% to $101,463.89, Ether down 1.8% to $3,222.53
* Bonds: 10-year Treasury yield down 8 basis points to 4.55%
* Commodities: West Texas Intermediate crude down 0.8% to $77.24 a barrel, spot gold up 0.7% to $2,726.37 an ounce