Market Reactions to Trump's Tariff Plans

By Rae Wee

SINGAPORE (Reuters) - Global markets reacted with caution to Donald Trump's presidency on Tuesday, particularly focusing on his proposed plans for tariffs and trade relations. The atmosphere was tense, influenced heavily by news surrounding the new president's intentions.

U.S. markets were closed on Monday for a holiday, making the first impacts of Trump's presidency felt during the Asian trading hours on Tuesday, which also led to predictions of a weaker opening in European markets.

Investors initially felt relieved when Trump’s inauguration speech seemed to hint at a potential delay in tariffs. However, their optimism was short-lived as Trump mentioned shortly afterward that he was considering imposing 25% tariffs on imports from Mexico and Canada starting February 1.

This statement caused the Mexican peso to drop by 1% against the dollar, and the Canadian dollar slid to a five-year low of C$1.4515. Furthermore, Trump expressed his desire to address the U.S. trade deficit with the European Union through tariffs or increased energy exports.

European automotive industries were under scrutiny after Trump cancelled an executive order from his predecessor that aimed to ensure that half of all new vehicles sold in the U.S. by 2030 would be electric.

As Trump's remarks regarding tariffs surfaced, global stock market gains quickly diminished, and the U.S. dollar saw a notable increase in value.

Charu Chanana, Saxo's chief investment strategist, stated, "The initial hours of the Trump administration have highlighted that the policy environment will be dynamic once more. Markets should prepare for unpredictability." He added, "Clearly, the markets celebrated too soon with tariff threats missing at the outset in Trump's inaugural speech."

U.S. stock futures retracted their earlier gains, leaving Nasdaq futures virtually unchanged, up just 0.1%. Other indices also fluctuated between losses and gains.

Trump’s proposals for significant import tariffs continue to be integral to market focus, as many investors believe such measures could ignite inflation and potentially overheat the U.S. economy, subsequently benefiting the dollar while pressuring bond markets.

Some investors anticipated immediate tariff implementations once Trump took office, which initially instigated a relief rally across stocks and U.S. Treasuries. However, Khoon Goh, head of Asia research at ANZ, remarked, "We are quite certain that Trump will proceed with the tariff measures. His current inaction does not suggest it's off the table; it remains firmly on the agenda, and we must wait and see how it unfolds."

The benchmark yield on U.S. Treasuries was last noted to be 4.54%, down by 7.1 basis points, indicating an inverse relationship between yield and bond prices.

In the currency markets, the dollar managed to recover from earlier losses, moving away from a two-week low. The euro fell 0.3% to $1.0385, and the British pound dropped 0.32% to $1.2290.

Market Volatility and China

In China, stocks displayed volatility as investors contemplated how Trump's tariff strategies towards the world's second-largest economy might unfold. Although he has threatened tariffs as high as 60% on Chinese imports, the absence of immediate action kept market sentiment cautious.

The Chinese blue-chip index last showed a modest increase of 0.13%, while the broader market index experienced a slight decline of 0.08%. Conversely, Hong Kong’s market performed better, with a rise of 0.79%, aiding in lifting the MSCI index of Asia-Pacific shares outside Japan, which was up by 0.34%.

Kenny Ng, a securities strategist at China Everbright Securities International, pointed out, "Trump not mentioning tariffs on China is certainly positive for market sentiment. However, this ambiguity means investors are still left guessing, and it will remain a point of concern." The Chinese yuan maintained some of its gains, trading at 7.2781 per dollar, although its offshore counterpart decreased by 0.2% to 7.2801.

Crypto Reactions and Commodities Outlook

In the crypto market, a newly introduced token related to Trump saw a significant downturn, falling 20% to $35.27 after reaching over $10 billion in market value earlier in the week. Bitcoin also dipped by 0.08% to $102,460.68, moving away from a record high achieved on Monday.

The prospect of more lenient regulations on cryptocurrency under the Trump administration has been positively received by the industry and has fueled a rally in digital assets post-election.

In the commodities sector, oil prices remained relatively stable as investors evaluated Trump’s intention to increase U.S. oil and gas production by possibly declaring a national emergency. Oil futures traded flat at $80.1 per barrel, staying near their lowest level in over a week, while U.S. West Texas Intermediate crude futures dropped by 0.8% to $77.24 per barrel, following a holiday pause on Monday.

Shares, Dollar, Trump, Tariffs, Market