Wall Street Steady as Trump Unveils Mexico and Canada Tariff Plans

Donald Trump’s latest trade manoeuvres appear to have left financial markets largely unfazed. After Trump announced plans to impose punitive tariffs on Mexico and Canada, the S&P 500 and Nasdaq Composite showed limited movement. Trading resumed on Tuesday following the US public holiday for Martin Luther King Day, with the initial response on Wall Street displaying calm resilience.
Wall Street Opens Flat Before Modest Gains
Tuesday morning saw the S&P 500 and Nasdaq Composite start off flat before showing progress. The S&P 500 climbed 0.9%, and the Nasdaq recorded a 0.6% rise. Meanwhile, the US dollar rebounded significantly, hitting five-year highs against the Canadian dollar and gaining 1% against the Mexican peso.
Trump’s declaration of 25% tariffs set to begin on 1 February has drawn attention, but stock markets’ minimal reaction suggests a level of expectation already priced in. Wall Street’s earlier post-election rally seems to have laid a foundation of stability amidst Trump’s controversial trade policies.
Global Market Trends Reflect Mixed Sentiments
Across the Pacific, Asian markets provided a cautious yet slightly optimistic outlook. Japan’s Nikkei index closed 0.3% higher, while Hong Kong’s Hang Seng climbed nearly 1%. Mainland China’s Shenzhen rose modestly by 0.5%, as investor sentiments appeared buoyed by Trump’s reinstatement of TikTok operations and the absence of tariffs targeting Chinese imports.
European markets, however, saw cautious movements. The UK’s FTSE 100 gained marginally, rising just four points to 8,524, whereas Germany’s Dax and Italy’s FTSE MIB dipped slightly. France’s CAC managed a modest 0.25% increase. Meanwhile, European currencies, including the pound and euro, slipped against the surging dollar, losing 0.6% in trading.
Oil Drops, Safe Havens Rise
Commodities reflected market unease. Brent crude and West Texas Intermediate (WTI) oil both saw declines, with Brent falling over $1 per barrel to $79.10 and WTI dropping by $1.73 to $76.15. Conversely, gold benefited as investors sought safe-haven assets, reaching a two-month high.
Joshua Mahony, an analyst at Scope Markets, commented, “Trump’s approach to tariffs is throwing Mexico and Canada into economic uncertainty, reflected in their weakened currencies. For now, Chinese markets seem cautiously optimistic while keeping an eye on potential shifts in his trade policy.”
Tariffs Target North America—but What About Europe?
European leaders remain wary of potential economic repercussions. Trump has reiterated his intent to resolve the US trade deficit with the European Union. Proposals include leveraging tariffs or encouraging the EU to ramp up purchases of American oil and gas.
Trump lifted a moratorium on new US energy export licences, momentarily calming European natural gas markets. Dutch month-ahead futures traded 0.3% higher in Amsterdam, reflecting slight stabilisation.
CMC Markets’ Jochen Stanzl noted, “Trump’s pivot towards increased oil production and his pressure on the EU to import more US energy has provided some clarity for investors. However, concerns persist as Germany approaches elections and remains vulnerable to potential US tariffs later on.”
Crypto and Investor Caution
Bitcoin saw initial gains earlier this week, soaring to a record $109,000 amid hopes of a more crypto-friendly administration. However, without explicit endorsement from Trump, cryptocurrencies have since retreated. Markets are now waiting for any definitive stance, with analysts predicting that positive comments could reignite a bullish trend.
Jochen Stanzl added, “Investors largely held back, expecting more significant policy announcements. While crypto breakthroughs seem unlikely in Trump’s immediate agenda, a single endorsement could drastically alter market dynamics.”
Eyes on Davos and Beyond
Investors will also be closely monitoring discussions during the World Economic Forum in Davos. With key global leaders and business figures, including China’s Vice-Premier Ding Xuexiang, in attendance, opportunities for potential trade deal developments remain hopeful. Additionally, any indirect responses to Trump’s latest moves could play a pivotal role in shaping market behaviour.
A Wait-and-See Approach
Although Trump’s bold trade policies introduced volatility in select markets, the muted initial reaction implies that financial markets are learning to anticipate and adapt. The focus now shifts to detailed tariff outlines in the days ahead and the potential ripple effects on global markets, particularly in Europe and Asia.
With oil prices stabilising and new policies rolling out, investors will undoubtedly keep a close eye on unfolding developments in Washington, Brussels, and Beijing.
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