The global financial markets reacted sharply after President-elect Donald Trump announced his intention to impose additional tariffs on imports from China, Mexico, and Canada. In his latest posts on the Truth Social network, Trump detailed plans for a 10% tariff on Chinese goods and a 25% levy on products from Mexico and Canada. The move, framed as a measure to address illegal immigration and drug trafficking, has amplified concerns about the economic ramifications of Trump’s “America First” policies.
The Dollar Spot Index surged 0.7% following the announcement, reflecting investor flight toward the perceived safety of the US dollar. The Chinese offshore yuan weakened 0.4%, while the Mexican peso and Canadian dollar both depreciated by over 1%. Commodity-linked currencies such as the Australian and New Zealand dollars also faced declines, with the Australian dollar sliding as much as 1.1% and the New Zealand dollar down 0.8%.
“Trump’s threat of even more tariffs will give another leg up to the US dollar,” noted Carol Kong, a strategist at the Commonwealth Bank of Australia in Sydney. “The Aussie and kiwi are likely to struggle due to their economic ties to China.”
Equity markets across Asia responded negatively to the tariff rhetoric. Japan’s Nikkei 225 and Topix fell 1.4% and 1.3%, respectively. Australia’s S&P/ASX 200 declined 0.4%, while South Korea’s Kospi also registered losses.
However, there were pockets of resilience. The Shanghai Composite and Hong Kong’s Hang Seng Index both rose 0.2%, buoyed by hopes of policy support from Chinese authorities to counteract potential economic disruptions.
Kieran Calder, head of equity research for Asia at Union Bancaire Privée in Singapore, noted that this tactic aligns with Trump’s previous trade strategies. “This is President Trump’s negotiating style: step one, punch in the face; step two, let’s negotiate.”
US equity futures slipped as investors weighed the potential economic fallout of the new tariffs. S&P 500 futures fell 0.2% during Tokyo trading hours, while Euro Stoxx 50 futures dropped 1.1%.
Commodities also felt the heat. West Texas Intermediate crude edged 0.1% lower to $68.85 per barrel as the stronger dollar exerted downward pressure on oil prices. Gold, often seen as a hedge during periods of uncertainty, rose 0.1% to $2,628.89 per ounce.
Bonds
The bond market reflected a mixed response. Yields on 10-year US Treasuries remained stable at 4.28%, while Japan’s 10-year yield declined by 1.5 basis points to 1.055%. In Australia, the 10-year yield fell six basis points to 4.42%.
Cryptocurrencies
Cryptocurrencies exhibited resilience amid the broader market turbulence. Bitcoin gained 1%, trading at $94,660.11, while Ether rose 0.4% to $3,451.67.
Stock Market Overview
US Markets: On Monday, the S&P 500 closed up 0.3%, and the Nasdaq 100 added 0.1%.
Asian Markets:
Nikkei 225 fell 1.4%.
Australia’s S&P/ASX 200 dropped 0.4%.
Hong Kong’s Hang Seng Index and Shanghai Composite both rose 0.2%.
European Futures:
Euro Stoxx 50 futures were down 1.1%.
Trump’s Policy Outlook and Market Sentiment
The market’s reaction underscores the uncertainty surrounding Trump’s return to the presidency and the economic implications of his policies. In a recent op-ed for Fox News, Scott Bessent, Trump’s pick for Treasury Secretary, indicated strong support for tariffs, suggesting they are a critical tool in Trump’s broader economic strategy. This hardline stance has reinforced fears of a prolonged period of trade disruptions.
Bessent, a hedge fund veteran, is seen by Wall Street as a pragmatic yet firm operator. His appointment has reassured some investors that Trump’s policies may prioritize US financial market stability despite the aggressive rhetoric.
Market analysts offered mixed views on the potential fallout. While some see Trump’s statements as part of a broader negotiation strategy, others warn of significant economic repercussions.
“Markets are jittery because the impact of these tariffs could ripple across global supply chains,” said Sarah Li, a senior economist at Nomura in Hong Kong. “If implemented, they could trigger retaliatory measures, worsening the trade environment.”
Meanwhile, Colin Huang, chief economist at the Shanghai Institute of International Finance, argued that Beijing might leverage the yuan’s depreciation to offset the impact of tariffs. “China has the tools to mitigate these effects, but the prolonged uncertainty will weigh on sentiment.”
The week ahead is packed with economic releases that could further influence market sentiment:
Tuesday: Fed minutes, US new home sales, consumer confidence data.
Wednesday: US Personal Consumption Expenditures (PCE), GDP, and initial jobless claims.
Thursday: Thanksgiving holiday in the US; Eurozone consumer confidence data.
Friday: Eurozone Consumer Price Index (CPI) and the European Central Bank’s consumer expectations survey.
Despite the current volatility, Wall Street strategists remain cautiously optimistic about the medium-term outlook for the US stock market. Predictions for the S&P 500’s year-end performance remain bullish, with targets from major firms like Goldman Sachs, Morgan Stanley, and BMO Capital Markets clustering around the 6,600 mark. This represents an 11.7% gain from last Friday’s close.
However, these projections hinge on the resolution of trade tensions and the pace of economic recovery. “Investors are walking a tightrope,” remarked Mark Hall, a portfolio manager at JPMorgan Asset Management. “While there’s room for optimism, policy missteps could derail progress.”
