Global markets greeted Donald Trump’s presidency with concern on Tuesday in a move that was highly sensitive to headlines regarding the newly inaugurated president’s plans particularly regarding trade relations and tariffs.
US markets were closed for a holiday on Monday, so the first reactions to Trump’s return to the White House were felt during Asian trading on Tuesday, with European futures also pointing to a lower open.
While investors welcomed Trump’s possible delay in implementing tariffs after the topic was briefly mentioned in his inaugural speech, the US president said shortly afterward that he was considering imposing 25% tariffs on Mexico and Canada as soon as February 1. .
This caused the Mexican peso to slump 1% against the dollar while the Canadian dollar fell to a five-year low of C$1.4515.
Trump has also said he wants to reverse the US trade deficit with the European Union, either with tariffs or more energy exports.
European automakers will be in focus after Trump revoked a 2021 executive order signed by his predecessor that sought to ensure half of all new vehicles sold in the United States by 2030 were electric.
Trump’s tariff comments quickly reversed gains in global stock markets and sent the greenback rising strongly in choppy trade.
“The first few hours of the Trump administration have underscored that the policy environment will again be dynamic and markets must brace for volatility,” said Charu Chanana, Saxo’s chief investment strategist.
“Clearly, markets were too quick to celebrate the non-existent threat of tariffs from the start of Trump’s inaugural speech.”
U.S. stock futures pared strong gains from earlier in the session, leaving Nasdaq futures flat and S&P 500 futures up 0.1%.
Japan’s Nikkei also experienced similar fluctuations between losses and gains and was last up 0.13%.
Trump’s plan to impose large import tariffs has become a major focus of financial markets with the view that the policy will fuel inflation and overheat the US economy, which would boost the dollar and hurt bonds.
Some investors had predicted a rapid imposition of tariffs since he took office, so the lack of concrete action initially sparked a brief rally in US stocks and Treasuries.
“At some point, we’re pretty confident that Trump will start implementing tariffs… It’s pretty clear what his intentions are,” said Khoon Goh, head of Asia research at ANZ.
“The fact that he hasn’t addressed this since day one doesn’t mean it’s not on the agenda. It’s definitely on the agenda, we just have to wait and see what shape or form it takes.”
Benchmark 10-year US Treasury yields last fell 7.1 basis points to 4.54%. Yields move inversely to bond prices.
In currencies, the dollar recovered its losses from earlier in the session and pulled away from its lowest level in two weeks.
The euro weakened 0.3% to $1.0385, while sterling weakened 0.32% to $1.2290.
WHAT IS NEXT?
In China, stock prices fluctuated as investors struggled to understand what Trump planned to do with tariffs on the world’s second-largest economy.
Although he threatened to impose tariffs of up to 60% on imports of Chinese goods, the lack of immediate action so far has left markets cautious.
The blue-chip CSI300 index last traded 0.13% higher, while the Shanghai Composite Index fell 0.08%.
Hong Kong’s Hang Seng Index fared better, rising 0.79%.
This helped lift MSCI’s index of Asia Pacific shares outside Japan (.MIAPJ0000PUS), which rose 0.34%.
“Not mentioning tariffs on China is definitely a sentiment boost so we saw an initial spike overall, but it also means it will leave investors in a guessing game. This will remain an issue,” said Kenny Ng, securities strategist at China Everbright Securities International.
The onshore yuan held on to some of its gains overnight and was last at 7.2781 per dollar, while the offshore currency fell 0.2% to 7.2801.
Elsewhere, Trump’s new crypto token gave up some of its strong gains on Tuesday and fell 20% to $35.27, after surging to more than $10 billion in market value at the start of the week.
Bitcoin fell 0.08% to $102,460.68, away from Monday’s record high.
The prospect of looser regulations around crypto policy under the Trump administration has been greeted with fanfare by the industry and fueled the rally across digital assets following his election victory in November.
On the commodity side, oil prices were little changed as investors digested Trump’s plan to maximize US oil and gas production by declaring a national emergency.
Brent crude futures were flat at $80.1 a barrel, near their lowest level in more than a week. U.S. West Texas Intermediate crude futures fell 0.8% to $77.24 a barrel from Friday’s close. No settlement on Monday due to US public holiday.
Source: Reuters
