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 tossed on the first day of Donald Trump’s new presidency as they second-guessed his trade tariff plans and were largely left in the dark on the issue as the U.S. markets returned from Monday’s holiday. .
Trump’s inauguration was accompanied by dozens of executive orders and directives — ranging from emergency restrictions on immigration at the Mexican border to increased oil drilling, a requirement that government agencies keep inflation in check, U.S. withdrawal from climate accords and pardons for Capitol Hill rioters in 2021.
But there were no specific Day One actions on the long-promised trade tariffs – something already noted on Monday by a Wall Street Journal report that sharply weakened the US dollar and boosted overseas stock markets, which were in the line of fire gave.
But just as that relief set in during the day, leading to one of the biggest declines in the dollar index of the year and rallies in European and Chinese stocks, Trump later responded to questions by saying he was considering tariffs of 25 % on Mexico and China. Canada from February 1, with inaction from both countries blamed for the flows of illegal migrants and fentanyl.
However, he also suggested that his plans for a universal tariff on all US goods imports were not yet in the works. “Maybe so. But we’re not ready for that yet,” Trump said.
The result was that Monday’s rallies 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 its biggest one-day gain since August on Monday, also gave back almost half of that move.
European shares, which had risen on Monday, were flat earlier today and mainland Chinese shares also stalled after giving up an early gain of almost 1%. However, Hong Kong’s Hang Seng closed 0.9% higher that day.
In a presidential memo, Trump directed the Departments of Commerce and Treasury and the U.S. Trade Representative to examine the economic and national security risks of large trade deficits and “recommend appropriate actions, such as a global additional tariff or other policies, to address such deficits ” .
The memo called on 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 after Monday’s Martin Luther King holiday and also in the midst of fourth-quarter earnings season, the overall picture appears to remain positive, with index futures up 0.5% before Tuesday’s bell . Netflix will later be at the top of the corporate agenda.
Encouraged by the ambiguity on rates and the rather vague prioritization of anti-inflation measures, 10-year US Treasury yields extended last week’s decline and reached their lowest since January 2. But with 2-year yields still just at 4.25%, the difference in the two- to 10-year yield curve has narrowed to the flattest level of the year.
Tempered by Trump’s repeated push for more oil drilling and US self-sufficiency in oil and gas, the slump in US crude oil prices to a 10-day low also helped lift sentiment in bonds – which reinforced the more positive picture of underlying inflation. US government bonds rebounded last week.
However, Trump’s first day in office didn’t seem to change much of the market’s thinking about the Federal Reserve. Another quarter-point cut remains priced at mid-year, and futures offer a 60% chance of a second move of that magnitude later in the year.
In specific sectors, the new president’s withdrawal from climate talks and the rollback of numerous alternative energy initiatives from the previous administration caused global green stocks to take a hit.
Wind energy stocks in Europe, including Vestas Wind Systems and Nordex SE, fell 4.7% and 3.6%, respectively, after Trump suspended new federal offshore wind leasing pending an environmental and economic review.
Orsted also tumbled 15.3% on the news, after the offshore wind developer recorded a $1.69 billion impairment charge related to its US offshore portfolio.
And for previously exuberant crypto markets, the lack 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 named Trump, retreated Tuesday from new records set earlier in the week.
Elsewhere, the UK employment report showed a somewhat mixed picture for the pound and UK markets.
British wage growth remained stubbornly strong in the three months to November, but there were further signs of a weakening labor market.
Private sector wage growth excluding bonuses – a measure closely watched by the Bank of England as a proxy for domestic inflationary pressures – rose to 6.0% in the three months to October from 5.5% three months through November.
But the number of workers registered by businesses fell by 47,000 in November – the biggest monthly decline in four years.
Key developments that should give more direction to US markets later on Tuesday:
* Canada Consumer price inflation in December
* 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, Argentinian President Javier Milei, etc.
* ECOFIN meeting of European Union Finance Ministers in Brussels, in the presence of Vice-President of the European Central Bank, Luis de Guindos
(By Mike Dolan, Editing by Ed Osmond; mike.dolan@thomsonreuters.com)