Trump’s ‘Stop-Go’ Tariff Exchanges Whiplash Dollar

A look at the day ahead in the US and global markets by Mike Dolan

Likely a taste of things to come, stock and currency markets were rocked back and forth on the first day of Donald Trump’s new presidency as they second-guessed his trade tariff plans and remained largely flat dark on the issue as US markets returned from Monday’s holiday. .

Trump’s inauguration was accompanied by dozens of executive orders and directives, ranging from emergency curbs on immigration at the Mexican border to more oil drilling, a demand for government agencies to control inflation, US withdrawal from climate accords and pardons for Capitol rioters in 2021.

But there were no specific first-day measures on long-promised trade tariffs, a Wall Street Journal report early Monday noted that weakened the U.S. dollar and lifted foreign stocks that considered in the firing line.

However, while that relief came throughout the day, leading to one of the biggest drops in the dollar index of the year and rallies in European and Chinese stocks, Trump later responded to the questions saying he was considering 25% tariffs on Mexico and Canada starting Feb. 1, blaming both countries’ lack of action on flows of illegal migrants and fentanyl.

However, he also suggested that his plans for a universal tariff on all imports of US goods were not yet in place. “We can. But we’re not ready for it yet,” Trump said.

The result was that Monday’s moves in the Mexican peso and Canadian dollar were almost completely reversed, wiping out half of the euro’s jump. China’s offshore yuan, which had starred in its biggest one-day gain since August on Monday, also gave back almost half of that move.

European shares, which had advanced on Monday, were flat earlier today and shares in mainland China were also flat after giving up early gains of nearly 1%. Hong Kong’s Hang Seng, however, closed down 0.9% on the day.

In a presidential memo, Trump directed the Commerce and Treasury departments and the US Trade Representative to investigate the economic and national security risks of large trade deficits and “recommend appropriate measures, such as a global supplemental tariff or other policies, to solve these deficits”. .

The memo called for the USTR to assess China’s performance under the “Phase 1” trade deal it signed with Beijing in 2020 to end a nearly two-year tariff war.

For Wall Street stocks returning from Monday’s Martin Luther King holiday and also in the midst of fourth-quarter earnings season, the overall picture appears to remain positive and index futures rose to 0, 5% before bell on Tuesday. Netflix tops the corporate daily later.

Buoyed by equivocation over tariffs and rather vague prioritization of anti-inflation measures, US 10-year Treasury yields extended last week’s retreat to hit their lowest level since Jan. 2. the 2- to 10-year yield curve gap narrowed to its flattest level of the year.

Cushioned by Trump’s repeated push for more oil drilling and US self-sufficiency in oil and gas, the pullback in US crude prices to a 10-day low also helped improve the state of ‘bond sentiment, reinforcing the more benign view of underlying inflation that caused Treasuries to bounce last week.

However, Trump’s first day did not appear to have altered the market’s thinking on the Federal Reserve. Another cut of a quarter point remains in the price by mid-year and futures see a 60% chance of a second move of this magnitude by the end of the year.

In specific sectors, the new president’s withdrawal from climate talks and his planned rollback of numerous alternative energy initiatives from the previous administration saw global green stocks take a hit.

Wind energy stocks in Europe, including Vestas Wind Systems and Nordex SE, fell 4.7% and 3.6%, respectively, as Trump suspended new federal offshore wind leasing pending an environmental and economic review.

Orsted also fell 15.3% on the news, as the offshore wind developer posted a $1.69 billion impairment charge related to its US offshore portfolio.

And for previously exuberant crypto markets, the absence of any specific reference to the digital token industry on inauguration day was seen as a disappointment.

Bitcoin and other crypto tokens, and even the newly minted token bearing Trump’s name, retreated Tuesday from new highs set earlier in the week.

Elsewhere, the British jobs report presented a mixed picture for the pound and UK markets.

UK wage growth remained stubbornly strong in the three months to November, but there were further signs of a softer jobs market.

Growth in private sector pay excluding bonuses – a measure watched closely by the Bank of England as a gauge of domestic inflationary pressure – rose to 6.0% in the three months to November, from 5 .5% in the three months to October.

But the number of employees registered by companies fell by 47,000 in November, the biggest monthly drop in four years.

Key developments that should provide further direction for US markets later Tuesday:

* December consumer price inflation in Canada

* US Corporate Earnings: Netflix, Capital One, Seagate Technology, United Airlines, 3M, DR Horton, KeyCorp, Charles Schwab, Fifth Third, Prologis

* World Economic Forum in Davos, including German Chancellor Olaf Scholz, South African President Cyril Ramaphosa, Argentine President Javier Milei, etc.

* ECOFIN meeting of the finance ministers of the European Union in Brussels, with the presence of the vice-president of the European Central Bank, Luis de Guindos

(By Mike Dolan Editing by Ed Osmond; [email protected])

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