Dollar Soars, Stocks Fall as Trump Imposes Tariffs: Markets Wrap

(Bloomberg) — The dollar surged and stocks plunged after US President Trump’s tariffs unleashed a fresh wave of chaos in global markets.

A gauge of the dollar jumped 1%, hitting its highest level in more than two years, after Trump levied punitive tariffs on Canada, Mexico and China. The Canadian dollar sank to its weakest since 2003. The euro slumped, heading closer to parity with the greenback, after Trump said tariffs on European goods would “definitely happen.” 

The selloff ricocheted across asset classes on Monday, with global stocks and US equity futures declining. Automakers, technology stocks and miners led a decline of 1.6% in the Stoxx Europe 600 benchmark. Bitcoin tumbled, while crude oil gained and industrial metals fell.  

The rapid escalation in tensions constitutes the most extensive act of protectionism taken by a US president in almost a century, given its knock-on effect on everything from inflation to geopolitics and economic growth. Trump said he plans talks on Monday with Canada and Mexico ahead of the tariffs coming into force. The levies are set to take effect Feb. 4, barring a last-minute deal.

“He seems to be like a poker player who’s betting his whole stash on the first hand,” Steven Englander, global head of G-10 FX research at Standard Chartered Plc, told Bloomberg TV on Monday. “The market just wasn’t prepared for it.”

Driving the rally in the dollar is the expectation that tariffs will fuel inflationary pressures and keep US interest rates elevated, while also hurting foreign economies more than the US and adding to the greenback’s safe-haven lure. Fears the action will stoke price pressures also spurred a rise in two-year US Treasury yields.

“The fear of an increase in tariffs could slow down the current upswing and cause significantly increased volatility,” said Guillermo Hernandez Sampere, head of trading at asset manager MPPM GmbH. “Experience shows that there are no winners in trade wars.”

Emerging market currencies such as the Indian rupee and the Mexican peso posted large losses, while South Africa’s rand weakened after Trump criticized the country’s land expropriation policies. 

Traders are on alert for big swings in assets that are considered at the front lines of any trade war. While that should include China, Hong Kong’s share market reopened after a multi-day holiday and declined less than those of Japan, South Korea and Taiwan. Mainland China’s share market reopens on Wednesday.

China is eager to get trade talks going and is readying an opening bid to try to head off greater tariff increases and technology restrictions, the Wall Street Journal reported. Offshore yuan pared losses after the report.

In response to the US announcement, Canadian Prime Minister Justin Trudeau unveiled a 25% counter-tariff, while Mexican leader Claudia Sheinbaum pledged retaliatory levies. China’s Commerce Ministry issued a statement vowing “corresponding countermeasures,” without elaborating, and vowed to file a complaint to the World Trade Organization.

Corporate earnings due this week include Amazon.com Inc. and UBS Group AG. 

The tariff announcement also sparked a surge in the price of US benchmark West Texas Intermediate as levies on imports from Canada and Mexico threaten to disrupt North America’s tightly integrated oil market and push up gasoline prices for American motorists. The potential disruption to US oil supply saw the discount of WTI to Brent narrow. 

“Financial markets may undergo a painful adjustment process in the coming weeks as participants begin to take the president seriously and literally,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

Some key events this week: 

• Eurozone HCOB Manufacturing PMI, CPI, Monday
• UK S&P Global Manufacturing PMI, Monday
• Atlanta Fed President Raphael Bostic speaks on the economic outlook, Monday
• Alphabet, UBS, BNP Paribas earnings, Tuesday
• New Zealand unemployment, Wednesday
• Toyota earnings, Wednesday
• China Caixin services PMI, Wednesday
• Eurozone HCOB Services PMI, PPI, Wednesday
• Eurozone retail sales, Thursday
• UK rate decision, Thursday
• Amazon earnings, Thursday
• Mexico rate decision, Thursday
• India rate decision, Friday
• Canada unemployment, Friday
• US nonfarm payrolls, unemployment, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 1.5% as of 8:14 a.m. London time
• S&P 500 futures fell 1.6%
• Nasdaq 100 futures fell 1.9%
• Futures on the Dow Jones Industrial Average fell 1.3%
• The MSCI Asia Pacific Index fell 2.5%
• The MSCI Emerging Markets Index fell 2%

Currencies

• The Bloomberg Dollar Spot Index rose 1.1%
• The euro fell 1.3% to $1.0224
• The Japanese yen fell 0.3% to 155.61 per dollar
• The offshore yuan fell 0.3% to 7.3440 per dollar
• The British pound fell 0.8% to $1.2291

Cryptocurrencies

• Bitcoin fell 1.8% to $95,289.95
• Ether fell 11% to $2,596.39

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.55%
• Germany’s 10-year yield declined three basis points to 2.43%
• Britain’s 10-year yield advanced one basis point to 4.55%

Commodities

• Brent crude rose 1.1% to $76.49 a barrel
• Spot gold fell 0.2% to $2,793.20 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Michael G. Wilson, Chris Bourke and Matthew Burgess.

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