- US imposes increased tariffs on its closest trading partners
- US equities decline as risk appetite remains weak
- Dollar records losses against major currencies
- Oil and cryptos remain under pressure
Trump Has Once Again Upset Equity Markets
Risk assets have started the new month off on the wrong foot, as US President Trump has announced the imposition of the next round of tariffs. While he has yet to sign the Canadian and Mexican tariff bump – potentially keeping the door open to a last “second” chance to postpone these further – Trump has signed the increase of tariffs on Chinese imports to 20%. He also touted April 2 as the starting date for the reciprocal tariffs, with the European Union in the spotlight to secure an agreement before that date.
Despite certain market participants treating Trump’s tariff talk as a negotiation tactic, the latest developments show that he is serious about implementing his “America First” agenda, completely ignoring the impact on the global economy. Interestingly, US data is not really booming lately, as the February ISM manufacturing survey remained barely above 50, which was mostly due to its price paid subindex jumping to the highest level since July 2022. On the flip side, both the employment and new orders components fell below the 50 threshold again.
US stock indices took a heavy hit on Monday, reversing Friday’s decent gains and starting March off on the wrong foot. The Russell 2000 index led the sell-off, with the Nasdaq 100 index suffering significantly and dropping 8% below its recent peak. With China announcing a counter-tariff of 15% on certain US imports, and Canada preparing to impose retaliatory tariffs, risk appetite is expected to remain weak, dragging European equities lower as well.
Notably, in China, the week-long annual sessions of the National People's Congress (NPC) and the National Committee of the Chinese People's Political Consultative Conference (CPPCC) will run until March 11.
There is a growing risk of a more aggressive stance being adopted by the Chinese side in the current tariff war, potentially denting risk sentiment even further.
Dollar Is on the Back Foot Again
The US dollar is not enjoying the latest round of tariff announcements, as it is underperforming against most major currencies. Euro/dollar has climbed above 1.0500 again, and dollar/yen is hovering below the key 150.15 level. The latter is important as Trump – probably for the first time in his second term – has adopted yen-negative rhetoric.
He regards the weak currency strategy implemented by certain countries as a form of tariff, potentially opening the door to the imposition of trade restrictions on Japanese products. This sounds very far-fetched considering the special US-Japanese relationship, but it is probably another message that no one is safe at this juncture.
The data calendar is light, with Fed members Musalem and Barkin being on the wires later today. Notably, the US President is scheduled to address Congress at 21:00 Eastern Time (02:00 GMT). Apart from his expectedly harsh tariff rhetoric, markets are looking for extra info on tax cuts. This could be key in reversing the current negative market sentiment.
Oil Is Under Pressure; Cryptos Erase Weekend’s Gains
Amidst these developments, the OPEC+ alliance is reportedly ready to implement the agreed supply increase. There were numerous reports that the alliance might further postpone this increase because WTI oil prices are hovering slightly above the key $67 level. The planned April increase is rather small, just 138,000 bpd, but such a move could be a sign that OPEC+ members might be preparing for a price war to protect their market share.
Finally, the cryptocurrency market has started the new month with high volatility. The recent sell-off was interrupted by Trump’s comment about building a Strategic Reserve. He singled out Bitcoin, Ethereum, Solana, XRP and Cardano, causing a massive surge in their prices. However, the move appears to have mostly fizzled out, as the king of cryptos is now hovering below the $84k level.
The last three days’ performance has probably confirmed the view that the cryptocurrency market is still far from becoming a stable alternative to equities. 