Global stocks climbed on Tuesday, while the dollar rebounded after a sharp decline the previous day. Investors and traders in every corner of the globe are coming to terms again with the new degree of uncertainty brought about by the White House return for President Donald Trump. His mixed messaging on tariffs has heightened market volatility, particularly for trade-dependent currencies like the Canadian dollar and Mexican peso. Right after Trump’s return, he announced a change in return and trade policies.
Trump’s contemplation of an excise of 25% on goods from Canada and Mexico that could be imposed as of February 1 triggered waves in financial markets. Both currencies took a sharp fall, the Mexican peso by more than 1% and the Canadian dollar by $0.689, a five-year low. Despite these setbacks, the market found some relief in Trump’s decision not to impose immediate, sweeping tariffs.
Experts say markets are still digesting Trump’s return and trade policies
“Markets are still digesting the flurry of Mr. Trump’s executive orders, but there’s a general feeling of relief for the time being”, analysts at TD Securities commented.
The MSCI World Index gained 0.34%, a positive sign in global equity. In the U.S., the S&P 500 gained 0.43%, the Dow Jones Industrial Average climbed 0.8%, and the tech-heavy Nasdaq remained flat. European and Asian markets exhibited slight positive movements, as did the STOXX 600 index (STOXX 600) up 0.32%, and MSCI’s Asia ex-Japan index (MSCI Japan) up 0.2%.
Tariff concerns and currency market reactions
Despite the early efforts of Trump to dampen fear of rapid tariff escalation, market strategists continue to be prudent. “Not being flooded with immediate tariffs right now does not exclude there will be some later on,” said Jan Von Gerich, chief strategist, Nordea. For global equities, the focus is firmly on Trump’s trade policy.
The dollar index, a currency measuring the dollar to a basket of major currencies, increased 0.2% to 108.21, regaining some of Monday’s drop. Nevertheless, it still lies below its recent peaks, which reflects the continuing uncertainty.
The euro (up 1.42% on Monday) dropped 0.16%, to $1.034. In the meantime, bond markets experienced pullback, with U.S. 10-year Treasury yields declining by 4 basis points to 4.56%. Nevertheless, the U.S. 10-year Treasury is still above last year owing to the robust economy and low expectations of Federal Reserve further rate cuts.
Oil and Energy Markets
Oil prices dropped as investors considered what Trump would do to raise US energy production. Brent crude decreased by 0.9% to $79.44 bp and WTI crude decreased by 1.7% to $76.54.
In Asia, Chinese stocks remained stable, with the CSI 300 index unchanged. Japan’s Nikkei 225 rose 0.32%. Markets in the region appeared relieved that Trump did not impose immediate tariffs on Chinese exports but remained wary of potential future actions. Although Trump’s early actions look like a more transactional trade policy approach, markets are still cautious. “This certainly isn’t done yet,” said Timothy Graf, head of macro strategy at State Street. Investors should brace for further developments.
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