Financial markets showed a divided response to U.S. President Donald Trump’s first day in office, as investors balanced the absence of immediate sweeping tariffs with concerns over future trade actions. While Chinese stocks led gains in Asia following Trump’s decision to hold off on imposing new tariffs on China, the dollar strengthened as he moved forward with plans to impose tariffs of up to 25% on imports from Canada and Mexico, effective February 1. U.S. Treasury yields rose as well.
The mixed market sentiment reflects heightened uncertainty about the global trade landscape as Trump embarks on his second term. While Asian stock markets initially rallied, volatility persisted as traders adjusted their expectations in response to Trump’s comments. This fluctuation came after U.S. stock futures had surged, and the dollar had fallen on Monday when Trump seemed to delay the imposition of higher global tariffs via executive orders.
“We expect more bouts of volatility and erratic trading in the near future,” said Chetan Seth, a strategist at Nomura Holdings Inc. “Asian equities will likely stabilize only when the looming tariff threat subsides, but we are clearly not at that point yet.”
The Canadian dollar and Mexican peso both dropped by as much as 1.4% in reaction to Trump’s tariff remarks, while Bloomberg’s dollar index rose by 0.7%. U.S. Treasury 10-year yields fell 9 basis points to 4.54%, reflecting market adjustments to inflation expectations in light of the delayed tariffs.
With Trump’s promise to quickly implement his “America First” agenda, market participants had been anticipating swift executive action, particularly on tariffs. Concerns about widespread tariffs, which could exacerbate global trade tensions, had roiled markets since Trump’s election. Meanwhile, the strengthening of the dollar reflected a shift in the Federal Reserve’s cautious stance on policy easing.
Trump, in his Oval Office remarks, specified the 25% tariff rate for Canadian and Mexican goods, citing their immigration policies. “We’re thinking in terms of 25% on Mexico and Canada, because they’re allowing vast numbers of people into the country. I think we’ll do it February 1,” he said.
In currency markets, the Japanese yen was the only major currency to gain against the dollar, rising to a one-month high as investors positioned for a potential interest rate hike by the Bank of Japan in its upcoming policy meeting on Friday.
While Trump refrained from imposing new tariffs on China, he directed his administration to address perceived unfair trade practices globally and to investigate whether China had adhered to agreements made during his first term. This focus on trade practices raised concerns about further tariff escalation, particularly for China, which may face higher rates in the future.
“With a 25% tariff now on the table, markets will likely worry that China could face even steeper measures,” said Jun Rong Yeap, a market strategist at IG Asia Pte. “While we may expect more ‘fire and fury’ in future tariff decisions, the approach could be more reactive than predictive for now.”
In the commodities market, oil prices fluctuated between gains and losses as investors processed Trump’s promises to boost domestic production. Iron ore prices surged, while Bitcoin continued its downward trajectory, falling for a fourth consecutive day.
Analysts offered various perspectives on the evolving situation:
Charu Chanana, Chief Investment Strategist at Saxo Markets, remarked, “The tariff reprieve for now is only temporary. With Canada and Mexico at the forefront, there’s hope that China’s markets may remain somewhat insulated, at least for the time being.”
Kinger Lau, Chief China Equity Strategist at Goldman Sachs, stated, “Our base case is that the U.S. will raise tariffs on China by 20 percentage points, though the timing remains uncertain. China should be able to manage that, and the government is likely to respond with measures to ease external pressures.”
Fiona Lim, Senior FX Strategist at Malayan Banking Bhd., highlighted that “any signs of friction in U.S.-China trade negotiations will remain negative for the yuan. If the talks drag on, the yuan’s decline may persist, though potentially at a slower pace.”
Philip McNicholas, Asia Sovereign Strategist at Robeco Singapore, warned that “China is clearly the next target for tariffs, which could increase upward pressure on the USD/CNH. The news about Canada and Mexico has reversed the softer dollar tone, returning us to the volatility seen during the 2016-2020 period. Higher volatility remains a key theme for markets.”
The financial markets are likely to continue grappling with the evolving trade landscape as Trump sets the stage for what could be a turbulent second term on the global stage.
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