Market Reaction to Early Trump Tariffs: Queasiness and Market Volatility
Initial Relief Fades as Trump Pledges Tariffs on Mexico, Canada
As President Donald Trump enters his second term, financial markets have been confronted with an early reminder of life under his administration. Initial relief over the absence of immediate broad-scale tariffs on trade partners dissipated, replaced by unease among some investors as Trump announced plans to impose levies on Mexico and Canada within weeks.
Market Movements
The US dollar initially weakened before surging as Trump threatened to impose tariffs of up to 25% on Canadian and Mexican imports as early as February 1st. US stock futures fluctuated between gains and losses as traders weighed the potential inflationary impact of the limited pledges. In the absence of announcements specifically targeting China, Chinese stocks rallied, but analysts cautioned against over-interpreting the significance of Trump's first day in office. European stocks remained steady, while automakers, vulnerable to tariffs, declined by nearly 1%.
Reaction to Offshore Wind Ban
Trump's decision to halt offshore wind power developments sent shockwaves through the industry, with Vestas Wind Systems A/S and Ørsted AS experiencing steep declines. Ørsted announced a $1.7 billion impairment on US projects.
Analysts' Perspectives
Christopher Dembik of Pictet Asset Management noted that while the current trade restrictions do not represent a "worst-case scenario," traders are aware that "Trump is coming for [Europe] sooner or later."
Jun Rong Yeap of IG Asia Pte. emphasized the uncertainty surrounding potential further tariff implementations, suggesting a "more reactionary" approach by markets.
Earnings Season and Global Events
Fourth-quarter earnings season continues, with companies such as 3M Co., Netflix Inc., and United Airlines Holdings Inc. scheduled to report on Tuesday. Investors will also monitor developments at the World Economic Forum meeting in Davos.
Commodities and Other Markets
Oil prices declined as traders assessed Trump's plans to boost domestic production. Iron ore rallied, while Bitcoin dropped below $102,000 for the fourth consecutive day.
Key Market Events
* UK jobless claims and unemployment (Tuesday)
* Canada CPI (Tuesday)
* Speech by ECB President Christine Lagarde at Davos (Wednesday)
* South Korea GDP (Thursday)
* Eurozone consumer confidence (Thursday)
* Trump's "dialogue" at the World Economic Forum (Thursday)
* Japan CPI and rate decision (Friday)
* India, euro area, and UK PMIs (Friday)