By Suzanne McGee, Saeed Azhar and Tom Westbrook
NEW YORK/SINGAPORE (Reuters) -Financial markets swayed and wobbled at the beginning of Donald Trump’s second U.S. presidency after he made a softer start on China than many had anticipated, but then signaled punitive tariffs on North American neighbours within hours.
A wave of relief that swept across markets – as his speech and slew of executive orders imposed no new trade levies – was stopped in its tracks when Trump told reporters in the White House’s Oval Office that he was thinking about 25% tariffs on Mexico and Canada from Feb. 1.
The dollar, which had slipped, reversed course to hit five-year highs on its Canadian counterpart. [MKTS/GLOB][FRX/]
Hong Kong shares rose, battery stocks fell and the trading day was a neat reminder of both the rollercoaster that markets rode through Trump’s first term and how, this time, investors feel more sanguine about the risks.
“Prepared remarks and what’s off the cuff – both of them will move markets,” said Tai Hui, chief market strategist in Asia at J.P. Morgan Asset Management, at a briefing in Singapore.
“Rather than basing all our investment decisions on what is announced…we just have to maybe take a step back and just absorb,” he said.
“What was said on the campaign trail…and what is now being studied and researched and implemented there’s still going to be a significant gap.”
Trump had vowed to immediately impose steep tariffs of 10% to 20% on global imports into the U.S. and 60% on goods from China, but a memo he issued after taking office only directed agencies to research and investigate the U.S. trade deficits.
The dollar hit a five-year high of 1.452 Canadian dollars before steadying around C$1.44. It rose but stayed below last month’s highs on the Mexican peso.
Treasuries rallied and S&P 500 futures rose 0.2%. European futures slipped 0.4%. Chinese stocks and the yuan tentatively rose. [CNY/][.HK]
“Tariffs are necessarily an overhang,” said Vis Nayar, chief investment officer at Eastspring Investments in Singapore.
“I think we should expect volatility. But there is hope that there is some pragmatism. We have to assume that he’s not going to do anything that just brings up U.S. inflation without paying attention to that.”
PRO-BUSINESS, BUT AT A COST
Trump enters office with an ambitious agenda spanning trade, immigration, tax cuts and deregulation which has the potential to boost U.S. corporate profits but which could also reignite inflation and put upward pressure on interest rates.
