Tariff Relief Lifts S&P Futures as Trump Sworn In: Markets Wrap

(Bloomberg) — Relief that Donald Trump will hold off from imposing China-specific tariffs on his first day in office propelled US equity futures higher on Monday. The dollar slumped.

Trump was sworn in as president, and promised to sign a series of executive orders the same day. For now, those will not include new tariffs on the three biggest US trading partners. 

Contracts on the S&P 500 rose 0.4% with Wall Street closed Monday for a holiday. A gauge of the dollar dropped around 1%, extending a retreat from the 13-month high it reached earlier in January. 

The incoming administration has pivoted away from a full-blown trade war, toward potential engagement with Beijing, according to people familiar with the plans. Trump plans to issue a broad memorandum that directs federal agencies to study existing trade policies and relationships with China, Canada and Mexico, the Wall Street Journal reported earlier Monday. 

That suggests he plans to pursue a more deliberative approach to trade relations, as he moves to quickly implement his policy agenda through a raft of decrees. 

“I do think, and maybe it’s just a hope, that Trump backs off from his most extreme rhetoric, especially on the deportation and tariff fronts,” said Marvin Loh, senior macro strategist at State Street Global Markets.

Monday’s whipsaw moves in equity futures and currencies, on a day when much of US trading was closed, nevertheless provided a foretaste of the uncertainty and volatility to come, according to Michael Green, chief strategist at Simplify Asset Management.

“The challenge becomes are you protecting against the risk of tariffs, or the risk that expected tariffs are not going to be put on?” Green said in an interview with Bloomberg TV. “It becomes a really challenging environment, one that likely translates to higher implied volatility.”

Trump’s inflationary domestic agenda, from tax cuts to fiscal spending, may keep the dollar strong and Treasury yields elevated. For one, Nomura Holdings Inc. has joined T. Rowe Price in seeing a chance of 10-year Treasury yields rising to 6% this year, while a small group of bond traders believe the Federal Reserve’s next move on interest rates will be to increase them, contrary to the majority view that rates will be cut.

“Any further stimulus that sparks a growth and inflation shock could lead to a Fed rate hiking cycle, for which markets are largely unprepared,” Iain Stealey, international CIO for fixed income at J.P. Morgan Asset Management, wrote in a note to clients. 

The Mexican peso eased off session highs earlier amid Trump’s vow to declare a national emergency at the southern border. Trump’s plan to invoke emergency powers in order to boost domestic energy production, while shifting away from renewable sources, sparked declines in Siemens Energy AG, Enel SpA and Vestas Wind Systems A/S. Crude oil fell.

Cryptocurrency traders, meanwhile, reaped early rewards as Bitcoin touched another record after Trump and his wife Melania unveiled their own memecoins over the weekend. The digital currency traded flat after erasing earlier gains.

Here’s how Wall Street reacted as Trump was sworn into office:

Steve Chiavarone, senior portfolio manager and head of multi-asset at Federated Hermes:

Generally speaking, the market views Trump’s agenda as being pro-growth. The focus today for markets is primarily on tariff policy. There wasn’t anything really new there during the inaugural speech. That’s one reason why the dollar is softer and markers are higher. The executive orders will be the next area to watch.

Steve Sosnick, chief strategist at Interactive Brokers:

The weaker dollar is thanks to reports of milder tariffs, which should be good for stocks of the multinationals that dominate major indices. Crypto is off its highs – maybe he didn’t give it enough love in his speech.

John McClain, portfolio manager at Brandywine Global Investment Management:

The market will be aggressively trading headlines in the coming days. Longer-term patient investors should take advantage of volatile swings in sentiment.

Key events this week: 

• The annual World Economic Forum in Davos begins, Monday
• Donald Trump to be sworn in as 47th president of US, Monday
• UK jobless claims, unemployment, Tuesday
• Canada CPI, Tuesday
• New Zealand CPI, Wednesday
• Malaysia CPI, rate decision, Wednesday
• South Africa retail sales, CPI, Wednesday
• ECB President Christine Lagarde and other officials speak at Davos, Wednesday
• South Korea GDP, Thursday
• Eurozone consumer confidence, Thursday
• Turkey rate decision, Thursday
• Norway rate decision, Thursday
• Canada retail sales, Thursday
• Trump will join the World Economic Forum for an online “dialogue”
• Japan CPI, rate decision, Friday
• India, euro area, UK PMIs, Friday
• ECB President Christine Lagarde and BlackRock CEO Larry Fink speak at Davos, Friday

And here are the main market moves:

Stocks

• S&P 500 futures rose 0.4% to the highest since Dec. 26 as of 2:24 p.m. New York time
• Futures on the Dow Jones Industrial Average rose 0.4% to the highest since Dec. 17
• The MSCI World Index rose 0.3%, climbing for the fifth straight day, the longest winning streak since Dec. 26

Currencies

• The Bloomberg Dollar Spot Index fell 0.9%, more than any closing loss since Aug. 23
• The euro surged 1.2%, more than any closing gain in about 14 months
• The British pound surged 1.1%, more than any closing gain in about 13 months
• The Japanese yen rose 0.3% to 155.76 per dollar
• The Mexican peso surged 1.2%, more than any closing gain since Jan. 6

Cryptocurrencies

• Bitcoin fell 0.3% to $103,216.37
• Ether rose 3.4% to $3,339.84

Bonds

• The yield on 10-year Treasuries was little changed at 4.63%
• Germany’s 10-year yield was little changed at 2.53%
• Britain’s 10-year yield was little changed at 4.66%

Commodities

• West Texas Intermediate crude fell 1.2% to $76.98 a barrel
• Spot gold rose 0.2% to $2,709.91 an ounce

This story was produced with the assistance of Bloomberg Automation.

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