And finally....
With European stock markets closed, and Wall Street off its earlier lows, we’ll give the final word today to ABN Amro.
They have told clients that the “Year of the tariff” has kicked off with a bang. And even though Mexico has won a (temporary?) reprieve from new tariffs today, the threat of tariff s will linger.
As ABN AMRO’s analysts put it:
US tariff threats against Mexico and Canada raises risk of massive trade war – President Trump’s ‘will he, won’t he’ threats of a 25% tariff on goods from Mexico and Canada (alongside a 10% additional tariff on Chinese goods) have significantly raised the probability of a more economically damaging trade war between the US and its main trade partners.
The situation remains fluid, with the latest word from Mexican president Sheinbaum suggesting a one month delay to tariff rises (previously scheduled for tomorrow) – at least for Mexico. But Trump himself has taken a hard line, saying “they owe us a lot of money, and I’m sure they’re going to pay.” Even if tariffs don’t go ahead in the near term, the risk will probably remain.
Trump has also sought to prepare the public for the massive disruption that is likely to result from tariffs, acknowledging that “we may have short term some little pain.” This would come from three main channels: 1) Canada and Mexico have vowed a massive retaliation, with Canada announcing a 25% tariff on $155bn of US goods, 2) higher US inflation (see below), 3) US companies with complex cross-border supply chains, such as auto makers, which may see a compounding effect of tariffs where goods cross borders multiple times.As ‘painful’ as all of this may be, Trump’s comments suggest a high bar for him to permanently climb down from tariffs. If anything, as we describe below, there might be a lower bar for him to expand his trade war.
I guess we’ll find out in the weeks, days, and hours ahead.
And to keep track of developments in the short-term, our US Politics Live blog has all the action:
Goodnight. GW
The detente between the US and Mexico is also calming fears on Wall Street.
The Dow Jones industrial average is now down just 0.1%, while the broader S&P 500 share index is 0.5% lower today.
European stock markets have also closed in the red tonight.
Germanys DAX was down 1.5% at the closing bell, while France’s CAC lost 1.3%.
Auto stocks were among the fallers, on fears of fresh tariffs on European carmarkets.
After a choppy day’s trading, the London stock market has closed in the red – but above its earlier lows.
The blue-chip FTSE 100 share index has ended the day down 90 points at 8583 points, a drop of 1% from last week’s record high.
That’s its biggest one-day drop since 19th December. The Footsie had been on track for its worst day in four months, before the US delayed its tariffs on Mexico for a month.
The smaller FTSE 250 index also recovered some of its earlier losses, to end the day down 1.14%.
The rally in the oil price has reversed too!
US crude, which had jumped 2% this morning, is now flat at $72.60 per barrel, while Brent crude is down 0.2%.
Elsewhere in the markets today, US hedge fund Saba has received a bloody nose in its battle to shake up the UK’s investment trust sector.
Shareholders in two more trusts rejected proposals from Saba, which is trying to oust the entire boards of seven trusts.
Investors in Baillie Gifford US Growth Trust rejected eight resolutions submitted by Saba to oust several of its board members, with 66% of votes cast voting against them.
Shareholders in Keystone Positive Change trust also rejected similar Saba proposals, with 72% of votes cast against.
That follows a heavy defeat for Saba at Herald, the tech-focused FTSE 250 fund, whose investors rebuffed the fund last month.
The euro is also recovering some of its earlier losses against the US dollar.
Having fallen by a cent and a half this morning to $1.0212, the euro has recovered to $1.0314, down less than half a cent.
Peso recovering in relief rally
Mexico’s peso has come bouncing back, on relief that the 25% tariffs at the US border have been delayed by a month.
Having hit a near three-year low this morning, the peso has recovered all those losses and is now stronger against the US dollar today.
The peso is now up 0.5% at 20.58 to the dollar.
Trump says he held off on tariffs after Mexico agreed to deploy troops to border
Donald Trump has now confirmed that his administration will hold off on imposing tariffs on Mexico for one month.
The reprieve coes, he sas, after Claudia Sheinbaum’s government agreed to deploy troops to its border with the United States.
Here’s Trump’s full statement, from Truth Social:
I just spoke with President Claudia Sheinbaum of Mexico. It was a very friendly conversation wherein she agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States. These soldiers will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country. We further agreed to immediately pause the anticipated tariffs for a one month period during which we will have negotiations headed by Secretary of State Marco Rubio, Secretary of Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick, and high-level Representatives of Mexico. I look forward to participating in those negotiations, with President Sheinbaum, as we attempt to achieve a “deal” between our two Countries.
Our US Politics Live blog has all the action:
The UK stock market is recovering some of its earlier losses too, after the tariffs on Mexico are delayed by a month.
The FTSE 100 index is now down 92 points, or 1%, at 8581 points, having been down over 1.2% earlier today.
The pound has rallied against the US dollar too, and is now slightly up against the greenback today at $1.24 (having been down by over a cent earlier).
Updated
Mexico: US tariffs have been delayed for a month
Newsflash: Mexico’s president has announced that the tariffs anounced by the US last weekend have been paused for a month.
Claudia Sheinbaum Pardo has said she has had a good conversation with president Trump, and agreed that Mexico will deploy 10,000 national guard immeidatley to border to avoid trafficking of drugs to the US, Reuters reports.
Sheinbaum also says the US has committed to working to avoid the trafficking of high powered weapons to Mexico, and that teams from the two countries have. started to work today on security and business.
BREAKING: Mexico President says that the US has agreed to "pause" the 25% tariffs on the southern neighbor for a month. More talks on security and trade to follow | #OOTT
— Javier Blas (@JavierBlas) February 3, 2025
This will come as a relief to investors, as well as Mexican companies facing tariffs at the border (and US consumers who may have faced higher prices in response).
Wall Street has responded - the Dow Jones industrial average has recovered some of its earlier losses, and is now down 0.5% or 238 points at 44,306.
Canada is expected to divert aluminium to Europe once US tariffs kick in.
Reuters reports:
The cost of aluminium for consumers in Europe buying on the physical market has dropped due to expectations that Canadian shipments under U.S. tariffs from Tuesday will be diverted, physical market traders said.
U.S. President Donald Trump has imposed 25% tariffs on Mexican and most Canadian imports and 10% on goods from China starting on Tuesday, potentially kicking off a trade war that could dent global growth and reignite inflation.
The risk appetite in the markets has turned sour by the new US tariffs, but there is hope they could be short lived.
So says Kathleen Brooks, research director at XTB, who adds:
There are some steep declines in line for US stocks. Nearly all sectors on the S&P 500 are in the red, except for energy, which has been buoyed by the oil price rise.
Chip stocks and autos are the worst effected sectors on the S&P 500 so far, followed by transport and banks. Autos, transport and semiconductors are directly impacted by tariffs, banks less so. The sell off in US banking stocks is reflective of residual concerns about the impact on US and global growth and the rising chance of a recession.
If Elon Musk takes a break from gutting the foreign aid agency USAid, he’ll see that shares in his electric car company are sliding.
Tesla’s stock is down 4.8%, making it one of the top fallers on the Nasdaq.
Nvidia, Nike and Goldman Sachs lead Dow fallers
Chip giant Nvidia are the top faller on the Dow Jones industrial average, down 5.2% in early trading.
Its followed by Nike (-2.6%) and Goldman Sachs (-2.4%).
Only five of the 30 stocks on the DJIA are up in early trading, including Unitedhealth Group (+1.3%), Amgen (+0.8%) and Procter & Gamble (+0.5%).
Wall Street joins the sell-off
Ding ding rings the Wall Street opening bell, to signal the start of trading in New York.
And stocks are sliding, as investors react to the imposition of tariffs on Canada, Mexico and China by the US.
The Dow Jones industrial average, of 30 large US companies, is down 1.26% at the start of trading, falling by 561 points to 43,982 points.
The broader S&P 500 index fell by over 1.6%, as stocks are roiled by Donald Trump’s tariffs.
The tech-focused Nasdaq index has dropped by 1.9%, while the Russell 2000 index of small US companies has dropped by 2.4% at the open.
Fawad Razaqzada, market analyst at City Index, says investors are defensive:
Overall, risk-off trade has dominated in the first half of Monday’s session, following Trump’s trade tariff announcements.
With tariffs against Canada and Mexico set to start tomorrow, there’s not much time for a potential trade deal to be struck, but the fact we have seen a bit of an uptick in US futures and with the US dollar coming off its earlier highs, investors are probably anticipating some positive news to come out of all of this.
Updated
Analysts at Bank of America have predicted that the tariff imposed on Mexico and Canada might prove to be temporary.
They suggest the tariffs could be lifted once the US, Canada, and Mexico trade agreement (USMCA) is reviewed – due to take place in 2026, but could happen earlier.
They told clients:
We expect 25% tariffs to Canada and Mexico may be short-lived, but 10% tariffs to China to be permanent.
Lower growth and higher inflation across the board. Fed on hold, Canada/China have room for policy stimulus, Mexico does not.
25% tariffs lingering for longer is a possibility: Mexico would not escape a recession, although Canada might.
Ontario premier 'ripping up contract' with Musk's Starlink
The leader of Ontario, Canada’s most populous province, has announced he’s ripping up a contract with Elon Musk’s Starlink internet services in response to the sweeping tariffs on Canada announced by Donald Trump last weekend.
Ontario Premier Doug Ford also declared he is banning American companies from provincial contracts in the province until US tariffs are removed.
Ford posted on X:
Every year, the Ontario government and its agencies spend $30 billion on procurement, alongside our $200 billion plan to build Ontario. U.S.-based businesses will now lose out on tens of billions of dollars in new revenues. They only have President Trump to blame.
We’re going one step further. We’ll be ripping up the province’s contract with Starlink. Ontario won’t do business with people hellbent on destroying our economy.
Starting today and until U.S. tariffs are removed, Ontario is banning American companies from provincial contracts.
— Doug Ford (@fordnation) February 3, 2025
Every year, the Ontario government and its agencies spend $30 billion on procurement, alongside our $200 billion plan to build Ontario. U.S.-based businesses will…
US market still heading for losses
With 30 minutes until Wall Street opens, US stock index futures are still down significantly in early pre-opening trading.
The S&P 500 E-mini futures are down more than 1.5%, while the Nasdaq is on track for a 1.7% drop.
Samer Hasn, senior market analyst at XS.com, says:
The losses for US stocks come as tariffs on imports from China, Canada and Mexico are set to go into effect this week.
These losses also reflect investors’ concerns about the potential impact of these tariffs on the US economy. Donald Trump began to acknowledge this in a tweet yesterday when he said that the US could face some pain due to the tariffs.
This “pain” could take many forms, including a potential rise in prices in the US, which will ultimately affect consumers, in addition to the fact that these tariffs will lead to retaliatory measures from these three countries – and those who will follow them – through the imposition of counter-tariffs and restrictions on goods exported from the US. While agricultural products, alcohol and American cars appear to be among the most prominent targets of these retaliatory measures that have already been threatened, according to The New York Times.
The Times also quoted experts as saying that the pain resulting from the escalation of the trade war will be represented by slowing economic growth, rising prices and crippling American industries, in addition to making China a more powerful global trading centre.
Downing Street has inisted that the UK’s trade relationship with the US is “fair”.
At the regular lobby briefing this morning, the PM’s spokesperson would not criticise Donald Trump for suggesting yesterday that the UK’s trade relationship with the US is unbalanced, and said:
From our part, the US is indispensable ally. It’s one of our closest trading partners. We’ve got a fair and balanced trading relationship which benefits both sides of the Atlantic. It’s worth about £300bn, and we are each other’s single largest investors, with £1.2tn invested in each other’s economies.
And we look forward to working with President Trump and the new US administration to build on UK us trading relations to benefit of both our economies …
We’re committed to free and open trade. We have a strong UK-US trade relationship, and as we said before, we look forward to working with President Trump to continue to build on the trading relations support so many jobs, no ties as the Atlanta has.
More here, in Andrew Sparrow’s Politics Live blog:
Elsewhere in the markets today, the cost of insuring South Africa’s debt against default has risen to its highest since early August, after US President Donald Trump said he would cut off funding to the country.
The country’s 5-year credit default swap rose by 11 basis. points from Friday’s close to reach 206 basis points, according to data from S&P Global Market Intelligence.
My colleague Rachel Savage reports:
Donald Trump has claimed South Africa is “confiscating” land and “treating certain classes of people very badly”, announcing he is cutting off all future funding to the country pending an investigation.
The US president’s intervention into one of South Africa’s most divisive issues was rebutted by the country’s government and criticised by groups across its political spectrum.
Land ownership in South Africa remains highly unequal, a legacy of white minority rule that governments have struggled to address since the first multi-racial elections in 1994.
Markets summmary
Time for a quick recap.
Stock markets across Europe have fallen, following losses in Asia-Pacific markets, after Donald Trump decided to impose new tariffs on Canada, Mexico and China last weekend.
News of the new trade levies, which kick in tomorrow, has sent shares sliding in London. The FTSE 100 share index is now down 1.3%, a drop of 115 points, which would be its biggest one-day drop since last October.
European markets are also deep in the red, with Germany’s DAX down 1.9%, France’s CAC off 1.8% and Spain’s IBEX down 1.5% in a “Trump tariff tantrum”.
Earlier, Japan’s Nikkei index fell by 2.6%.
Wall Street is expected to tumble when trading begins at 9.30am local time, or 2.30pm GMT.
The US dollar has surged since Trump announced 25% tariffs on Canadian and Mexican imports (with a 10% rate for Canadian oil), and a 10% rate for China.
This is pushing the euro closer to parity against the US dollar, and weakened the Canadian dollar to a 20-year low.
The oil price, though, has risen, on predictions of supply disruption, while metal prices have been hit by growth fears.
Economists fear that the tariffs could push Canada and Mexico into recession later this year.
JP Morgan analysts have warned there is a risk that Trump’s policy mix is tilting into a business-unfriendly stance.
They told clients:
This weekend’s actions challenge our underlying view that the Trump administration will strive to limit disruptive policies as it balances its desire to reduce engagement with the world with a commitment to support US businesses.
In short, the risk is that the policy mix is tilting (perhaps unintentionally) into a business-unfriendly stance.
Deutsche Bank have calculated that US trade levies are heading to their highest levels since the 1940s.
BNP Paribas have warned that the new tariffs will be “an inflationary shock for the US”.
Updated
FTSE 100 on track for biggest fall since October
Britain’s FTSE 100 share index is on track for its worst one-day fall in almost four months.
Concerns about the tariffs announced against Canada, Mexico and China last night – and fears that Europe could be hit soon too – are weighing on stocks.
The FTSE 100 is currently down 111 points, or 1.3%, which would be its biggest one-day drop since 8th October last year.
Investors are shunning riskier assets due to fears of a full-blown trade war, says Matthew Ryan, head of market strategy at global financial services firm Ebury:
“The unveiling of some savage tariffs from the Trump administration over the weekend has wreaked havoc in financial markets.
“It is perhaps not the size of the trade levies that has caught markets wrong-footed, but both the hastiness at which they will be imposed and the speed of the retaliatory response from authorities in Canada and Mexico. We have on our hands a full-blown trade war and one that, worryingly, may have only just begun, with President Trump hinting that the EU will be next to feel the wrath of his tariff policies.
“There appears to be no economic rationale for these trade restrictions, and the big fear for investors is that these tariffs could act to significantly weaken global growth in 2025.“This creates an extremely unpleasant environment for risk assets, and a favourable one for the dollar, particularly given the growing threat of higher Federal Reserve rates for longer.
Scottish Mortgage Investment Trust (-4.2%), which holds stakes in many US tech giants, is the top faller, followed by copper producer Antofagasta (-3.75%).
Diageo (-3.6%) is close behind, amid concerns that its sales into the US from Mexico and Canada will be hit by these new tariffs (see earlier post).
Updated
The jump in the oil price today (see earlier post) is expected to hit US airline stocks when Wall Street opens in just over two hour’s time.
American Airlines shares are down 2.2% in pre-market trading, Reuters flag, while United Airlines are 2.5% lower, and Alaska Air are off 2.1%.
Updated
The message from the White House with last weekend’s tariffs is that the US is ready to “take some pain’ to assert its dominance over other countries, says Gilles Moëc, group chief economist at AXA Investment Managers.
Moëc explains:
Those who had been hoping for a low “transformation rate” of Donald Trump’s electoral platform into policies may have to revisit their opinion after this weekend’s announcement of tariff hikes on Canada, Mexico, and China.
True, the move on Chinese products was limited to 10%, and Europe has so far been spared, but we think this is just a first salvo, and the shock on US import prices will already be substantial.
The message sent to all trade partners is that the US is ready to take some pain – the impact on US inflation is likely to be visible – to assert its dominance, and that no one, irrespective the tightness of the relationship with the US is, can consider themselves “safe” from US unilateral trade action.
Although the pound has fallen against the US dollar, it is gaining ground against the euro.
Sterling is up half a euro cent today at €1.201, its highest level in almost a month.
That highlights that the euro is among the currencies suffering more from trade war fears, even though the US has not – yet – announced tariffs on European imports (Donald Trump has hinted that this is coming, though….).
In contrast, the US president has also suggested that the UK might avoid new tariffs.
Updated
Deutsche Bank has calculated that if the tariffs announced by Donald Trump last weekend materialise, we will be back to levels last seen in the 1940s.
Strategist Jim Reid explains:
And this is before he has imposed tariffs on other nations with the “Sword of Damocles” especially hanging over the EU at the moment.
Mr. Trump has not been shy in admiration for former President McKinley (served 1897-1901) who he said made America “very rich through tariffs”.
If he ultimately wants to return to that era, we are still only about halfway back to the levels of tariffs that existed then.
Updated
JPMorgan says Trump administration may be ‘business unfriendly’
JP Morgan analysts are concerned that the policy mix of the Trump administration is tilting towards a “business-unfriendly stance”.
That questions one of the market’s core hopes over the Trump administration.
Following shock tariff announcements on Canada and Mexico, a team led by JPMorgan Chase’s chief economist Bruce Kasman warned that this weekend’s announcements point toward a materially different policy mix than had been built into their forecasts for 2025 and 2026.
They wrote:
“In short, the risk is that the policy mix is tilting (perhaps unintentionally) into a business-unfriendly stance.”
JPMORGAN: "Is this a business friendly administration?" pic.twitter.com/qNSeTN6ngk
— James Pethokoukis ⏩️⤴️ (@JimPethokoukis) February 3, 2025
UPDATE: JP Morgan also told clients:
A trade conflict with the US’s closest economic partners has begun and all indications are that these actions are a start to a widening conflict.
And they warn that Canada and Mexico could both be pushed into recession by the trade war, if it lasts for six months or more:
Model estimates suggest that the size of a sustained 25% tariff hike will be large enough to throw the Mexican and Canadian economies into recession, and this outcome will be our inclination if these policies are maintained for six months.
The sectoral composition of North American trade highlights concentrated impact in the transportation, energy, capital goods, and industrial supply sectors. But the deep integration of the North American economy points to broad sectoral effects if the tariff hikes are sustained
Updated
The prices of corn, wheat and soybeans traded in Chicago have fallen today after US President Donald Trump imposed tariffs on Canada, Mexico and China.
Those tariffs have triggered fears of a broader trade war which could also impact agricultural commodities.
Reuters has the details:
Chicago Board of Trade most active corn fell 1.6% to $4.74-1/4 a bushel at 1031 GMT.
Wheat fell 1.0% to $5.53-3/4 a bushel, soybeans fell 0.7% to $10.34-3/4 a. bushel.
Dennis Voznesenski, analyst at Commonwealth Bank in Sydney, has explained:
“We are likely to see retaliatory tariffs on U.S. agriculture products which could distort trade flows.
Still, questions remain regarding how long the tariffs will. remain for and if exemptions for certain products will come on a. case-by-case basis.”
Markets are bracing for another volatile week as Trump’s tariff policies take centre stage, reports Daniela Sabin Hathorn, senior market analyst at Capital.com.
The confirmation of 25% tariffs on Mexico and Canada over the weekend caught markets somewhat off guard, despite Trump’s prior hints. The lack of a clear economic rationale behind this decision — justified primarily as a measure to curb illegal immigration and fentanyl imports — has unsettled investors, leading to a risk-off sentiment at the start of the week.
The initial market reaction has favoured safe-haven assets, with the US dollar, Japanese yen, and gold gaining momentum this morning. Equities, on the other hand, are struggling.
Tariffs weigh on corporate earnings by squeezing profit margins and slowing future growth. They also impact valuations by reducing the likelihood of a Federal Reserve rate cut. As a result, major US equity futures opened lower during the Asian session. This decline comes at a time when equities were already considered overextended and expensive, with confidence still shaken from last week’s DeepSeek meltdown. The introduction of tariffs has further dampened the outlook for equities.
Inflation across the eurozone has risen, adding to the economic pressures on the region even before a global trade war kicks off.
Prices across the euro area rose by 2.5% in the year to January, up from 2.4% in the year to December.
Euro area #inflation expected to be 2.5% in January 2025, up from 2.4% in December 2024. Components: services +3.9%, food, alcohol & tobacco +2.3%, energy 1.8%, other goods +0.5% - flash estimate https://t.co/pcygk95Ufu pic.twitter.com/iE9IeWLOsu
— EU_Eurostat (@EU_Eurostat) February 3, 2025
A jump in energy prices lifted inflation – energy inflation rose to 1.8%. from 0.1% in December.
Services prices rose by 3.9%, while food, alcohol & tobacco prices rose by 2.3%, and goods prices rose by 0.5%.
Economists had expected eurozone inflation to remain at 2.4%.
Kyle Chapman, FX markets analyst at Ballinger Group, says:
A 0.1% miss on estimates feels somewhat irrelevant while there is a trade war erupting in North America and the markets are bracing for Trump’s actions towards the EU, of course, and investors have taken the upside surprise in their stride.”
Updated
The tumble in the UK’s stock market today highlights the global damage that a trade war can cause.
Joshua Mahony, analyst at Scopemarkets, explains:
While Trump indicated that US-UK relations would remain largely unaltered, the losses seen throughout both the FTSE 100 and 250 highlight the perception that this trade war will hurt businesses across the globe irrespective of whether they are directly impacted by tariffs.
The consequences for global markets will come down to whether nations respond with a tit for tat levy on US goods rather than striking a deal that would seek to bring an end to this crisis. Nonetheless, today is a brutal reminder for investors that Trump’s pro-business approach may not necessarily always translate into market friendly announcements. Volatility is back and it’s here to stay.
US stock market heading for losses as trade war fears spook investors
Wall Street is still expected to drop sharply when trading begins, in over four hours time.
The Dow Jones industrial average is expected to drop by around 1%, while the tech-focused Nasdaq is down 1.8% in the futures market.
Russ Mould, investment director at AJ Bell, says:
“The prospect of a full-blown trade war has spooked investors as they weigh up the prospect of widespread retaliation by countries on the receiving end of Donald Trump’s tariff frenzy.”
“Affected countries aren’t going to take the hit lying down and a tit-for-tat scenario is now looking real. That could result in higher inflation and put a stop to further interest rate cuts for the time being – exactly the opposite of what equity investors want to happen.
“Higher prices could hurt demand, and there might be a trickle-down effect that knocks business and consumer confidence and feeds into weaker economic activity.
Oil price jumps
The price of oil has jumped this morning, as traders anticipate supply disruption due to the US tariffs announced last weekend, which include 10% on Canadian oil.
The price of a barrel of US crude oil has risen by 2% to $74 per barrel, while Brent crude – the international benchmark – is up 1.2% to $76.57.
Saxo’s strategy team say:
Oil prices surged, led by US WTI, after Trump imposed significant tariffs on various imports, including crude oil from Canada and Mexico, raising concerns about higher gasoline and diesel costs for US consumers.
But… demand for oil could suffer if a trade war hits global growth, weakening take-up of energy.
BNP Paribas: An inflationary shock for the US
The Markets 360 team at BNP Paribas have warned that the new tariffs will be “an inflationary shock for the US”.
They predict that US inflation will ‘rise sharply’ in the months ahead – due to the direct impact of tariffs being passed onto consumers, and ‘second round’ effects such as higher wages.
They told clients this morning:
The announcement of higher US trade tariffs confirms our core assumption that Donald Trump’s campaign promises should be taken literally and seriously.
In fact, the announced increase in tariffs were even larger and came faster than we had pencilled in.
In turn US consumer prices should rise sharply over the coming months, while tariffs should put the brakes on economic growth.
This cements the Fed’s ‘on hold’ stance, with the direction of the next move to be determined by the balance of growth, inflation and market reaction.
For the rest of the world, the increase in protectionism is a clear net negative for growth, not least because the risk of a tit-for-tat escalatory trade war has risen.
We continue to see a more ambiguous impact on inflation outside of the US, and thus the implication for other central banks will depend in large part on starting domestic economic conditions.
Drinks giant Diageo are among the top fallers in London, on concerns that it will be hurt by US tariffs on imports from Mexico and Canada.
Diageo’s shares are down 3.1%, a day ahead of a crucial half-year results presentation expected tomorrow.
Investment bank Jefferies have calcuated that 46.2% of Diageo’s US sales are imported from Mexico and Canada, including brands such as Crown Royal, Don Julio and Casamigos.
Diageo, as well as other European drinks makes such as Pernod, Campari and Remy, could alaso be hurt by potential higher tariffs of EU products into the US, Jefferies add.
Diageo’s chief executive, Debra Crew, knows the US market well having been president of the company’s North America region before becoming CEO in 2023.
Her tenure, though, has seen a shock profits warning, adverse global consumer trends and investor disquiet – as covered here.
Britain’s short-term borrowing costs have dropped to their lowest level in over three months this morning.
The yield, or interest rate, on two-year UK bonds has dropped to 4.17%, down from 4.21% on Friday night, and the lowest since the end of October.
That could be good news for borrowers, as two-year bond yields are used to price fixed-rate mortgages.
It suggests City traders are more confident that UK interest rates will fall this year, with three quarter-point cuts fully priced in.
Shares in some of the biggest European carmakers have slumped this morning.
Volkswagen, BMW, Porsche, Volvo Cars, Stellantis, and truckmaker Daimler Truck all fell between around 5% and 6%. French car parts supplier Valeo slid by 8%.
Markets are retreating sharply today because investors had not expected a robust response from the countries hit by new US tariffs.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, explains:
‘’Investors are rattled at the prospects of a full-blown trade war breaking out after the US slapped punishing tariffs on Canada, Mexico and China, prompting retaliation. Investors are buckling up for a rollercoaster ride for the global economy, with the European Union expected to be next in line for punitive duties. The FTSE 100 has been stopped in its tracks with the record run upwards going into reverse. It fell sharply in early trade amid worries that listed multinationals could be caught in the cross-fires of the trade wars. Japan’s Nikkei traded sharply lower, as investors assessed the repercussions for big corporates. European indices are also set for a rocky day of trading and Wall Street is set to open firmly in the red.
What was considered to be bluff and bluster from Trump has turned into cold hard reality. But President Trump is no longer the only one playing hardball. Canada’s outgoing Prime Minister Trudeau immediately imposed tit-for-tat 25% tariffs on $155bn in US imports. Mexico’s President has also ordered retaliatory action.
These new aggressive actions on what used to be neighbouring allies, are the modus operandi of the new Trump administration, and part of not just trade policy but national security strategy.
Britain’s smaller share index, the FTSE 250, is also sliding in early trading.
The FTSE 250, which is more UK-focused than the FTSE 100, has shed 1.7% – with only six stocks rising, one flat, and the remaining 243 shares falling.
Investment bank Jefferies believe a deal will eventually be reached that means trade wars can be avoided, or limited.
But markets could be “bumpy” over the coming days or weeks, they warn, due to uncertainty over the situation.
Jefferies analyst Mohit Kumar says:
Tariffs and likely counter tariffs are dominating market price action today. The fact that tariffs are coming is not new news, but market (and our expectations) had been that Trump would threaten tariffs, given some time for negotiations and then eventually a deal will be reached
"Trump tariff tantrum" hits markets
The US stock market is also heading for heavy falls when it opens later today, as Richard Hunter, Head of Markets at interactive investor, explains:
February seems likely to begin with a Trump tariff tantrum, with very early futures prices signalling declines of more than 600 points for the Dow Jones, and declines of 2% or more for the benchmark S&P500 and Nasdaq indices.
This follows the announcement on Saturday that the President would be introducing 25% tariffs on Mexico and Canada, and 10% on China. Each of the affected countries threatened retaliatory action, prompting fears of a trade war which could impact corporate earnings, supply chains and economies more generally. An unintended consequence could even be that countries look to lessen their reliance on the US, which could weaken the currency in due course.
While there is a glimmer of hope for some easing of the tariffs, with the President reportedly planning talks with Mexico and Canada today, the speed of the measures so soon after his inauguration has taken many by surprise.
European markets hit by trade war anxiety.
European stock markets are a sea of red in early trading, after Donald Trump rattled investors by signing off on tariffs on China, Canada and Mexico last weekend.
Germany’s DAX index has fallen by 2% at the open, while France’s CAC 40 share index is down 1.9%.
Spain’s IBEX has dropped by 1.7% and Italy’s FTSE MIB has lost 1.4%.
Naeem Aslam, chief investment officer at Zaye Capital Markets, says investors are bracing for heightened uncertainty in global trade and economic stability, adding:
These downturns are driven by investor anxiety about the broader impact of tariffs on the global economy, particularly as European economies are highly intertwined with U.S. trade policies.
UK bank shares are also falling, with Lloyds Banking Group down 1.8%, NatWest down 1.9% and HSBC falling 1.4%.
Barclays, which was hit by an IT glitch that left thousands of customers locked out of their accounts on Friday and Saturday, are down 2.5%.
FTSE 100 index falls 1.25% at the open
Britain’s stock maket has joined the global selloff triggered by Donald Trump’s imposition of tariffs on Canada, Mexico and China last weekend.
The blue-chip FTSE 100 index, which tracks the one hundred largest companies listed in London, has fallen by 1.25% at the start of trading.
The FTSE 100 share index has shed 111 points to hit 8562 points, falling back from the record high hit last Friday.
Nearly every share is down, led by asset managers Polar Capital (-4.5%) and Intermediate Capital Group (-3.75%).
Mining firm Antofagasta (-3.5%), and Scottish Mortgage Investment Trust (-3.7%) are also among the top fallers.
City traders will be donning their virtual tin hats, as the London stock market is about to open, and shares are expected to fall….
Updated
Metal prices hit
Metal prices have fallen today, as president Trump’s 10% tariff on imports from China rattles the markets.
Benchmark copper fell by 1.05% to $8,953 a metric ton early this morning, its lowest level since 6 January.
The three-month aluminium contract fell 1.4% to $2,558, the lowest in over two weeks.
LME zinc fell 1.2% to $2,708 a ton, lead shed 0.7% to $1,936.5, tin eased 0.9% to $29,845 and nickel lost 0.4% to $15,145, Reuters reports.
The odds of the Bank of England cutting interest rates several times this year are rising, amid fears of global trade conflict.
The money markets are now pricing in 80 basis points, or 0.8 percentage points, or cuts to Bank Rate by the end of this year. That means three quarter-point cuts are fully priced in with the possibility of a fourth.
That’s up from 75 basis points of cuts expected last Friday.
UK RATE FUTURES POINT TO ABOUT 80 BASIS POINTS OF BANK OF ENGLAND RATE CUTS BY END OF 2025 VS ABOUT 75 BPS ON FRIDAY
— PiQ (@PiQSuite) February 3, 2025
The Bank is due to set interest rates at noon on Thursday, and a quarter-point cut – from 4.75% to 4.5% – is a 98% chance, according to this morning’s pricing.
Chart: Canada's dollar hits 20-year low
Here’s a chart showing how Canada’s currency fell to its weakest level in more than 20 years overnight.
The loonie (as it’s known in foreign exchange circles) fell almost 1.48 per US dollar, its lowest level since 2003, amid a general surge in demand for the US dollar (updated).
Kathleen Brooks, research director at XTB, says:
The immediate market impact late on Sunday was a sharp move higher in the US dollar. EUR/USD fell below $1.02 at one stage but has since recouped losses and is back above this level.
The Mexican peso initially fell 2% at the open, USD/MXN rose to its highest level since 2020, which is a fairly modest early reaction considering how negative these tariffs could be for the Mexican economy.
The Canadian Loonie also suffered a sharp selloff and fell to its lowest level since 2003.
Updated
Deutsche Bank: Standby for a manic Monday
Channelling The Bangles, Deutsche Bank strategist Jim Reid predicts a “manic Monday’ in the markets.
He tells clients:
Standby for a manic Monday as the world tries to come to terms with the “shock” tariff announcements from Mr Trump’s administration on Saturday night. I say shock but all Trump did was follow through on exactly what he’s been saying he’s going to do since November. The market has refused to take that threat seriously though, completely under-pricing the risks. So, this leaves the weekend news as a severe shock.
Reid points out that the 25% tariffs on Canada and Mexico, and an additional 10% on China’s imports, will have a sizeable impect:
These three countries make up around 40% of imported US goods, at around $1.35tn. To put this is some perspective, in the first Trump administration, the US targeted around $350bn of Chinese goods. So this is huge versus anything seen for decades with regards global trade and at face value takes us back to the protectionist period between the two world wars in terms of scale of tariffs.
And for Canada and Mexico, he adds, it could be a sharp economic shock:
In terms of implications, if implemented and prolonged, Canada and Mexico would likely go into an imminent recession and potentially see a bigger shock than Brexit was for the UK.
Key event
After a torrid day, Japan’s Nikkei 225 share index has closed for the day down 2.66%.
The Nikkei shed 1,052 points to finiish at 38,520 points, as traders digested last weekend’s tariff announcements.
IG analyst Tony Sycamore explains that Donald Trump’s move was more hawkish than anticipated:
The 25% tariff on Canada and Mexico will take effect this Tuesday, undermining hopes for a one-month delay. It also included the possibility of additional tariffs if these countries retaliate, with Trump also indicating that tariffs on Europe are imminent.
This weekend’s announcement also introduced a 10% tariff on China, contrary to market expectations of a later introduction, likely after easier negotiations with Canada and Mexico.
Pound falls by a cent
The pound is also suffering from the strength of the US dollar, as fears of a global trade war rattle markets.
Sterling has dropped by a cent, or 0.9%, against the dollar to as low as $1.2246, its weakest level in almost two weeks.
That’s a slightly smaller fall than the euro, which is down 1.15% against the US dollar to $1.024.
As flagged in the opening summary, Trump has said new tariffs on the EU will “definitely happen”, but suggested a deal with the UK could be worked out.
Parsing China's muted response (so far) to Trump's tariffs
There has been much analysis on China’s rather muted response to Trump’s tariff threats both in the lead in to and aftermath of Saturday’s announcement. Some have put it down to the weakness of China’s domestic economy and it’s eagerness to get to the negotiating table and ward off Trump’s earlier election campaign threats of 60% tariffs.
The Wall Street Journal is reporting that China’s initial proposal to tariffs imposed by US President Donald Trump’s administration will centre on restoring the “phase one” trade deal signed in 2020 during Trump’s first term.
As part of its effort to prepare for negotiations … China’s initial proposal will center on restoring a trade agreement Beijing signed in early 2020 with the first Trump administration but didn’t implement.
The so-called Phase One deal required China to increase purchases of American goods and services by $200bn over a two-year period. While Trump himself has described Phase One as the “greatest deal” ever made, many trade experts and business executives called it unrealistic to begin with.
Having failed to deliver on its pledge under the deal to increase US purchases, Beijing now is preparing to talk to the Trump administration about areas where China can buy more from the US, the people said.
Bloomberg, meanwhile, reports that with Trump’s levies set to take effect just after midnight on Tuesday, Xi has a range of tools to respond beyond reciprocal tariffs. Options include export controls on critical minerals and market access restrictions to some American firms, according to Gary Ng, senior economist at Natixis SA. A series of laws passed since Trump’s first term give China greater sway over domestic business deals in the name of national security.
Even so, the situation is also more complicated for China compared with the first trade war, both at home and abroad.
Bloomberg Economics estimates Trump’s initial levy could knock out 40% of Chinese goods exports to the US, jeopardizing 0.9% of China’s gross domestic product. Goldman Sachs Group Inc. said the additional 10% tariff would weigh on real GDP growth by 50 basis points this year, though it noted that Trump’s action “is less severe than market participants and Chinese policymakers feared.”
“If Chinese policymakers were indeed preparing for worse, then they are likely to react in a restrained manner for the time being and to adjust course later if needed,” Goldman Sachs economists said in a note on Monday.
Bloomberg has characterised the rapid escalation in trade tensions as “the most extensive act of protectionism taken by a US president in almost a century, given its knock-on effect on everything from inflation to geopolitics and economic growth.”
“He seems to be like a poker player who’s betting his whole stash on the first hand,” Steven Englander, global head of G-10 FX research at Standard Chartered plc, told Bloomberg on Monday. “The market just wasn’t prepared for it.”
In Canada, the department of finance has published a list of US products imported into Canada that it will target with a 25% retaliatory tariff starting on Tuesday.
The list shows products that will be hit in the first round of retaliatory tariffs by Canada starting on Tuesday, and mounts to $30bn Canadian dollars’ worth of goods (about US$20bn). The impacted products include tobacco, produce, household appliances, firearms and military gear.
Canada is also preparing for a second, broader round of retaliatory tariffs in 21 days that will target an additional C$125bn (US$86bn) worth of US imports. The second list would include passenger vehicles, trucks, steel and aluminum products, certain fruits and vegetables, beef, pork, dairy products and more.
The Australian trading day closed a short while ago and the Australian dollar and the benchmark ASX200 have both plunged after US President Donald Trump fired the first shot in what threatens to be a trade war that could crimp global growth, the Australian Associated Press reports.
The ASX200 index suffered its worst loss in four months on Monday, dropping 152.9 points, or 1.79 per cent, to a two-week low of 8,379.4.
The dollar meanwhile fell under 61 US cents for the first time since early in the Covid-19 pandemic, dropping as low as 60.88 US cents.
By late Monday afternoon it was back over that level but still down sharply, buying 61.22 US cents, from 62.25 US cents at Friday’s ASX close.
Australia’s big iron ore miners, BHP, Rio Tinto and Fortescue were earlier down between 2 and 5 percent on prospects the tariffs would stunt global growth.
Shares of top automakers Toyota, Honda and Kia down sharply
Shares of Japanese and South Korean automakers and their suppliers led declines in Asia on Monday, as exporters across the region were walloped by US President Donald Trump’s introduction of sweeping tariffs on Mexico, Canada and China.
The move by Trump, though widely expected, knocked some of the world’s biggest manufacturers, as investors grappled with the prospect of weakening demand from the world’s top economy and, more worryingly, the possibility of a downturn in global growth, Reuters reports.
Toyota, the world’s top automaker, and smaller rival Nissan fell more than 5%. Honda tumbled more than 7%.
Nissan has two plants in Mexico, where it makes the Sentra, Versa and Kicks models for the U.S. market. It exports about 300,000 vehicles to the US a year.
Honda sends 80% of its Mexican output to the US market, and its chief operating officer Shinji Aoyama warned in November it would have to think about shifting production if the U.S. were to impose permanent tariffs on imported vehicles.
South Korea’s Kia Motors which has a factory in Mexico, fell nearly 7%. South Korean electric vehicle battery firms and battery materials makers, which had plans to build factories in Canada to supply to GM, Ford and other companies slumped.
Updated
Opening summary
Donald Trump has threatened to widen the scope of his trade tariffs, repeating his warning that the European Union – and potentially the UK – will face levies, even as he conceded that Americans could bear some of the economic brunt of a nascent global trade war.
It comes as Trump’s 25% tariffs on Mexico and Canada, and 10% tariffs on China, announced on Saturday, sparked retaliation from all three countries. Mexico and Canada have vowed levies of their own while China and Canada are seeking legal challenges.
While Trump said new tariffs on the EU will “definitely happen”, he appeared to take a softer line on the UK, citing a good relationship with prime minister Keir Starmer while saying tariffs still “might happen”.
“The UK is out of line but I’m sure that one, I think that one can be worked out,” he said.
Trump acknowledged the sweeping tariffs he has imposed on Mexico, Canada and China may cause “short term” pain for Americans as global markets reflected concerns the levies could undermine growth and reignite inflation.
“We may have short term some little pain, and people understand that,” he said. “But long term, the United States has been ripped off by virtually every country in the world.”
Here’s a summary of the latest market moves and developments as Asian markets, cryptocurrencies and US and European stock futures slumped in Asian trading hours on Monday:
Stocks in Hong Kong, fell nearly 2% while China’s markets remained closed for the lunar new year holiday break.
Japan’s Nikkei share average tumbled as much as 2.3% in early trading, and Korea’s Kospi fell as much as 2.4%. Taiwan’s Taiex fell 4.4% at the open, led by a more than 6% plunge in semiconductor heavyweight TSMC.
In the US, S&P 500 futures slid 1.6% and Nasdaq futures slumped 2.2%. European futures fell as much as 3.4%.
The US dollar shot to a record high of 7.3765 against the Chinese yuan in offshore trading, and its highest against the Canadian dollar since 2003 and the strongest against the Mexican peso since 2022.
The euro fell by as much as 2.3% in response to Trump’s latest tariff threat, to near parity with the US dollar at $1.0125, the lowest since November 2022, before recovering to reclaim levels above $1.02.
Bitcoin was down by more than 6% to about $93,000. Ether, the second-largest cryptocurrency by market value, fell as much as 27% to $2,135, before paring some losses.
