President Trump imposed tariffs slightly heavier than expected, leading to firm selloffs in Asian and European equity markets, while the US Dollar also weakens considerably.
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A few hours ago, US President Donald Trump announced the imposition of a raft of tariffs on all imports to the USA on “liberation day”, essentially stating that the USA has been ripped off by its trading partners tariffs. Trump argues that all the specified nations have tariffs or de facto tariffs on US imports that are even higher, therefore the tariffs are “reciprocal”. A list of countries was given with the tariff rate that will be applied. Imports from unlisted countries will be tariffed at a default rate of 10%. The most important countries and rates are:
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China 54%
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Japan 24%
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European Union 20%
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Canada 25%
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Mexico 25%
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The tariffs are a little heavier than was widely expected. Markets have reacted by selling the US Dollar and stock markets worldwide are trading lower, although the declines are not catastrophic. No country has announced retaliatory tariffs yet, although many are considering it. The US Treasury Secretary has warned against retaliatory tariffs, implying there would be a strong counter retaliation. The Trump administration will be hoping that negotiations will now begin with many nations which will result in the lowering of barriers to imports all round, which President Trump believes will bring a lot of money into the US economy.
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Major US equity indices have declined since the US tariff announcement, although the moves are nothing unusual. Both the S&P 500 Index and the NASDAQ 100 Index reached multi-month lows and are trading in correction territory. Significantly worse declines are being seen in Japanese and European stock markets, where the extent of the tariffs has been a bit more of a surprise. The market reaction is suggesting that these tariffs will be more damaging to the European Union, Japan, and China than they will be to the USA, potentially vindicating Trump’s strategy.
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The Forex market has reacted to the new US tariffs by selling the US Dollar, which is trading sharply lower. It is declining even against the Canadian Dollar and Mexican Peso, as well as the Japanese Yen and the Euro. The EUR/USD and GBP/USD currency pairs are rising strongly to reach new long-term high prices, which will be attractive to trend traders on the long side, especially the EUR/USD. The weakest major currency since the Tokyo open is the US Dollar, while the strongest is the Japanese Yen – the Yen is acting as a safe haven.
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Gold reached a new all-time high in US Dollar terms, trading as high as $3,167 before falling quite strongly. The current price action will deter most trend traders from any new long trade entry.
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Yesterday’s release of the ADP’s US non-farm employment payroll forecast was higher than expected, showing 155k net new jobs against the predicted 118k will likely have been created. This suggests the economy is a bit stronger than thought.
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Swiss CPI (inflation) data released earlier today was a tick lower than expected, showing no change when a month-on-month rise of 0.1% was expected.
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There will be releases today of US ISM Services PMI data and Unemployment Claims data.