The first full day of trading in U.S. financial markets under President Donald Trump’s second term is set to begin with a surge of optimism, as the president’s more tempered stance on tariffs offers a reprieve for investors. On Monday, Trump issued a broad trade memorandum that avoided the immediate imposition of new tariffs on key trading partners—something he had previously signaled would occur on his first day back in office. Instead, he outlined plans to reassess trade relations with China, Canada, and Mexico before deciding on any further actions.
While U.S. stock and bond markets were closed for Martin Luther King Jr. Day, FX markets remained open, where the U.S. dollar experienced a sharp decline across the board. The 1% drop in the dollar index marked its largest dip since August, signaling relief among investors that the president may be stepping back from the aggressive tariff rhetoric that had previously unsettled markets.
This shift in tone is seen as a positive sign, even if it turns out to be short-lived. Data from the Commodity Futures Trading Commission revealed that hedge funds held a net long dollar position worth $35 billion last week, the largest in nine years. This positioning may have contributed to the dollar’s recent rally, which had pushed it up around 10% since September, alongside a surge in U.S. Treasury yields of more than 100 basis points. The tightening of financial conditions had put significant pressure on Asian and emerging markets, and a reversal in dollar strength could ease this squeeze.
U.S. stock futures are pointing to a positive open, with Wall Street expected to see gains of around 0.4% on Tuesday. Meanwhile, Asian markets rallied on Monday, with the MSCI Asia ex-Japan and Nikkei 225 indexes both rising more than 1%.
Markets worldwide are bracing for a wave of announcements from Washington in the coming days, as the new administration rolls out policy directives and executive orders. The next few days are shaping up to be highly volatile, as traders digest the unfolding news.
In commodity markets, crude oil prices retreated further after last week’s six-month highs, falling for a third consecutive day. Traders are awaiting further details on Trump’s executive order declaring a national energy emergency and his plan to fill the U.S. strategic oil reserves.
Related topics:
