Daily Market Reports | 8:34 AM
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Trump and Mexico have come to a short-term agreement, with announced tariffs delayed by one month. Markets are jumping on the opportunity to stage a relief rally, for now.
Locally there are no corporate releases scheduled for today. Tomorrow will be another story.
| World Overnight | |||
| SPI Overnight | 8394.00 | + 48.00 | 0.58% |
| S&P ASX 200 | 8379.40 | – 152.90 | – 1.79% |
| S&P500 | 5994.57 | – 45.96 | – 0.76% |
| Nasdaq Comp | 19391.96 | – 235.49 | – 1.20% |
| DJIA | 44421.91 | – 122.75 | – 0.28% |
| S&P500 VIX | 18.36 | + 1.93 | 11.75% |
| US 10-year yield | 4.54 | – 0.03 | – 0.57% |
| USD Index | 108.77 | + 0.55 | 0.51% |
| FTSE100 | 8583.56 | – 90.40 | – 1.04% |
| DAX30 | 21428.24 | – 303.81 | – 1.40% |
By Chris Weston, Head of Research, Pepperstone
Good morning.
If ever there was a trading session that cemented the need to have an open mind and a truly dynamic approach to react to intraday reversals and price moves in markets -and how the collective can respond aggressively when the underlying theme driving sentiment has sizeable implications on economics and that radically divides opinions– well, Monday has been a solid case study.
Through most of last week, the central view in the market was that tariffs on Mexico, Canada and China would most likely be pushed back or perhaps even staggered.
That view changed on Friday with Trump’s statement that he was set to sign in an additional 25% tariff on Mexico and Canada and 10% on China, which obviously were then signed in via executive orders on Saturday, with a Tuesday (today) deadline.
A subsequent defiant stance to retaliate from the Canadians and Chinese parties naturally knocked risk on the open yesterday, as the market -seemingly unprepared for the well-telegraphed punchy tariffs rates- repositioned exposures and looked to price the risk that escalation was building and a trade war that could soon also include Europe, and possibly Japan- was imminent.
In yet another turn of events, reports that China is pushing hard to get a deal before today’s deadline and will not look to aggressively devalue the CNY have resonated.
Then mid-way through US trade the breakthrough came, with Mexico -the nation of the three always most likely to get a reprieve– pulled out its plan B, signaling they will put troops in the right place to see Trump delay tariff implementation here for a month.
Our attention now turns to US talks with Canada and China, where headlines will no doubt be coming in thick and fast through Asian trade today, with Trump and Trudeau speaking shortly -so we’ll see if Canada can also find a play to have the additional 25% tariffs pushed back before the deadline.
Talks with China will be even more important for broad markets, and while China appears to be pulling out all the stops to get a deal, with the key personnel in Trump’s administration true China hawks, one could argue that the path for a similar resolution for China may not be as smooth and Trump will likely take this right to the wire, perhaps even past it.
Big move going down on the dancefloor
As anyone trading markets in the past 24 hours will attest to, we’ve clearly seen some big intraday reversals playing out in the USD pairs and in risk markets.
However, while we’ve certainly seen some constructive developments, until we know we know how talks with Canada and more so China evolve, and we have increased clarity on the set tariff implementation, I’d argue the coast is not yet fully clear to pile into risk with conviction, with the prospect of another tariff-related selloff still highly possible.
AUDUSD traded into a new Pandemic low of 0.6088 but has since rallied a big figure and looks up towards Friday’s closing levels of 0.6218.
With the deadline on China’s tariffs fast approaching news will be front and centre, and as we’ve heard from Trump if additional tariffs are to be imposed on China they will “be substantial”.
EURUSD traded to 1.0141 in early interbank trade, but now trades 1.0290, having been a high as 1.0335.
S&P500 futures were trading heavy through Asia, sitting -2.1% lower when the ASX200 and Nikkei225 closed for cash equity trade yesterday.
So, while the S&P500 cash index closed -0.8% lower on the day, the falls were nowhere near as bad as what was priced by the futures into Asian markets.
For context, S&P500 futures are currently 1.5% higher from the ASX200 close, so unless something significant is heard in incoming hours we should see a solid snapback, with the ASX200 likely opening 0.6% higher.
Its a news driven market ahead of us, decoding what is noise and signal are key…. But the prospect of big two-way moves going down seem once again elevated.
On the calendar today:
-New Zealand Dec Building permits
-China Public Holiday
-US Dec durable goods
-US Dec factory orders
-US Dec JOLTS
-Opthea ((OPT)) investor briefing
FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/
Corporate news in Australia:
-Vanguard has announced its biggest ever fee cut which will reverbate across the industry worldwide
-Blackstone is reportedly eyeing the acquisition of Star Entertainment ((SGR))
-National Australia Bank ((NAB)) reportedly considered acquiring Scottish Pacific (ScotPac), Australia’s largest non-bank business lender, but did not pursue the idea
-BP halts $600m renewable fuel project in Perth, reassessing demand and returns
-Regis Resources ((RRL)) secures $300m credit facility after early loan repayment
-Deloitte settles with Noumi ((NOU)) shareholders for $31m over audit failure
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 2857.62 | + 22.62 | 0.80% |
| Silver (oz) | 32.52 | + 0.25 | 0.77% |
| Copper (lb) | 4.32 | + 0.04 | 0.97% |
| Aluminium (lb) | 1.18 | + 0.01 | 1.19% |
| Nickel (lb) | 6.76 | 0.00 | 0.00% |
| Zinc (lb) | 1.26 | + 0.03 | 2.04% |
| West Texas Crude | 72.83 | + 0.30 | 0.41% |
| Brent Crude | 75.82 | + 0.15 | 0.20% |
| Iron Ore (t) | 101.59 | 0.00 | 0.00% |
By Hani Abuagla Senior Market Analyst at XTB MENA
Trump’s Trade Wars: Does It Even Make Sense?
“Keep your friends close, and your enemies even closer.” Donald Trump most likely took these words to heart, as he has found new enemies very close by.
Trump is openly declaring a trade war against Canada, Mexico, and China, imposing hefty tariffs on all products, marking a significant shift from the first trade war of his first term.
Many American media outlets are calling this new trade war “the dumbest one in history”, though Donald Trump believes it is necessary to restore the United States’ position on the international stage.
Does the new trade war make sense? Is it just part of a strategy? Who and how much will lose due to the United States’ aggressive trade policy?
Trump imposes tariffs on Canada, Mexico and China
Although Trump had long promised to impose huge tariffs on the economies with which the United States has the largest trade exchange, the markets were not entirely convinced by his words.
Ultimately, on the first day of February, Trump signed executive orders imposing 25% tariffs on all goods from Canada and Mexico, as well as 10% tariffs on all Chinese goods.
The only exception is energy commodities from Canada, for which the tariffs will be just 10% and will not take effect until February 18, instead of February 4.
Economic consequences. Who will be hit the hardest?
The tariffs signed by Trump are set to affect US$1.3trn worth of products, three times more than during the first trade war of Trump’s first term.
Back then, the tariffs were targeted at specific products and industries. This time, the tariffs are broad, raising questions about their justification and sustainability.
However, assuming these tariffs are here to stay, the U.S. economy could take a significant hit.
The estimates show that economic growth in 2025 could be reduced by -0.7 to -1.6 percentage points.
By 2026, it could be over -2 percentage points. But that’s not all. The Fed’s model estimates a substantial impact on inflation, around 0.7 percentage points.
In such a scenario, the chances of further interest rate cuts would become negligible, which, from the perspective of American businesses, citizens, and Wall Street investors, sounds mostly negative.
Donald Trump himself admits that the impact of the trade tariffs could be negative for U.S. citizens, but he emphasizes the necessary sacrifice to bring about long-term improvements.
However, if the tariffs are actually implemented, the declines in Canada’s and Mexico’s GDPs are almost certain, as they rely heavily on trade with the United States.
In Mexico, as much as 16% of GDP is tied to American trade, while in Canada, it’s about 14%.
For China, this percentage slightly exceeds 2%, so the impact on its economy should not be as drastic as it is going to be for the North American countries.
It is likely that there will be a sharp slowdown in trade in North America, which could also negatively affect countries that supply products to Canada and Mexico.
On the other hand, the U.S. might potentially look for cheaper alternatives in other regions of the world.
This could present an opportunity for Asian countries (other than China) to increase their exports.
Which industries will be under pressure?
The U.S. automotive sector is highly integrated. Before a car is sold, some parts cross borders multiple times.
Therefore, imposing tariffs on Mexico and Canada effectively means imposing tariffs on American manufacturers.
Of course, Trump would like to bring all production back to the U.S., but this is not feasible in the short term and would come with huge costs. Initial estimates suggest that the average price of American cars could increase by about US$3,000.
This is significant, considering the price of such a car is around US$45,00050,000. It’s also worth noting that inflation in recent years has been heavily influenced by changes in the automotive sector.
Attention should also be given to the electronics and apparel sectors. Let’s take a look at some major companies.
Apple, for example, manufactures the vast majority of its products in China, and the same applies to Nike.
Of course, these are only two examples, but many companies would likely pass the increased costs onto consumers.
Ultimately, the average U.S. household is estimated to lose around US$2,5003,000 annually due to the current scale of the trade war.
If tariffs on China were increased further and tariffs were also imposed on European Union countries, these costs would be substantially higher.
Does Europe have reason to worry?
Europe has often fallen out of favor with Trump. He has pressured Europe to spend more on defense and not leave issues like the war in Ukraine solely on the shoulders of the United States.
Trump also points to the large trade deficit with the EU, which could theoretically be reduced by increasing purchases of raw materials, primarily LNG gas. However, it’s quite likely that Trump will want to impose at least partial tariffs on European products.
The situation with Europe, specifically the European Union, is more complicated.
Trump would probably prefer to limit tariffs to specific sectors or countries. He would certainly consider imposing tariffs on European cars; especially German ones.
At the same time, Trump might avoid imposing tariffs on all economies, with the goal of ensuring that the European Union doesn’t impose broad retaliatory tariffs on the U.S. It is speculated that tariffs on Europe are planned for early March.
On the other hand, Trump himself views his unpredictability as one of his greatest strengths.
Therefore, we shouldn’t be surprised if he seizes the moment and imposes tariffs on Europe as soon as next week, which could result in the EURUSD pair quickly falling below parity.
It’s also worth noting that the trade imbalance between the U.S. and Europe is much larger than, for example, the trade imbalance between the U.S. and Canada.
How did the market react?
The U.S. dollar has gained on average 1% against most currencies worldwide. Larger moves were seen with the Canadian dollar and Mexican peso pairs.
European currencies such as the Polish zloty, Hungarian forint, and Czech koruna have also significantly depreciated.
There have been massive drops on European stock indices, where it is hard to find a broad market losing less than -1%.
European investors are concerned that similar tariffs to those imposed on Canada and Mexico could be placed on Europe or specific economies.
Is this just a negotiation strategy?
The trade tariffs were introduced under the pretext of addressing the issues of drug trafficking and illegal immigration into the U.S.
Therefore, there is a high likelihood that the tariffs could be challenged by the U.S. Supreme Court.
The likely strategy in this case would be to impose tariffs on specific products or sectors, which would be easier to justify.
Through the imposition of currently broad tariffs, Trump aims to send a clear message to his partners that the time for prolonged negotiations has ended and certain processes need to be accelerated.
In the long run, no trade war is justified, and its continuation could lead to a noticeable slowdown worldwide.
Even now, at the moment Trump’s decision on tariffs has been made, it is uncertain how they will work or if they will even be implemented.
Trump’s decisions remain highly unpredictable, and it will only be after the tariffs have been in place for several weeks or months that the true impact on the economy or the average consumer can be assessed.
What can be stated at this point is that the market will remain highly volatile, and further significant movements are to be expected.
Negative in the case of additional tariffs being imposed, but also positive if the situation becomes clearer and it is determined that the tariffs won’t have a strong impact on the current situation.
The Australian share market over the past thirty days
| Index | 03 Feb 2025 | Week To Date | Month To Date (Feb) | Quarter To Date (Jan-Mar) | Year To Date (2025) |
|---|---|---|---|---|---|
| S&P ASX 200 (ex-div) | 8379.40 | -1.79% | -1.79% | 2.70% | 2.70% |
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AUB | AUB Group | Downgrade to Neutral from Buy | UBS |
| BSL | BlueScope Steel | Upgrade to Buy from Neutral | Citi |
| CCP | Credit Corp | Downgrade to Neutral from Outperform | Macquarie |
| CMM | Capricorn Metals | Downgrade to Hold from Buy | Bell Potter |
| Downgrade to Underperform from Neutral | Macquarie | ||
| HMC | HMC Capital | Upgrade to Buy from Neutral | UBS |
| MDR | MedAdvisor | Downgrade to Hold from Buy | Bell Potter |
| MFG | Magellan Financial | Downgrade to Sell from Neutral | UBS |
| ORG | Origin Energy | Downgrade to Neutral from Outperform | Macquarie |
| SFR | Sandfire Resources | Upgrade to Neutral from Sell | UBS |
| STX | Strike Energy | Downgrade to Hold from Buy | Bell Potter |
| SUN | Suncorp Group | Downgrade to Neutral from Buy | UBS |
| ZIP | Zip Co | Upgrade to Buy from Neutral | Citi |
For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website. Click here. (Subscribers can access prices on the website.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author’s and not by association FNArena’s – see disclaimer on the website)
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