(Bloomberg) — Wall Street breathed a collective sigh a relief after Donald Trump held off from imposing China-specific tariffs on his first day in office, pushing US equity futures higher. The dollar slumped.
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Pivoting away from a full-blown trade war, Trump plans to issue a broad memorandum that directs federal agencies to study existing trade policies and relationships with China, Canada and Mexico, the Wall Street Journal reported earlier Monday.
After being sworn into office, the president promised to sign a series of executive orders, including one that declares a national emergency at the U.S.-Mexico border. For now though, the executive action will not include new tariffs on the three biggest US trading partners.
Signs that the president may pursue a less protectionist approach, for now, is a boon for multinational companies that rely on cross-border commerce, giving them time to adjust pricing and mitigate any impact to profit margins.
S&P 500 contracts rose 0.4%, with Wall Street closed Monday for a holiday. A gauge of the US dollar dropped around 1%, extending a retreat from the 13-month high it reached earlier in January.
Betting on the greenback has become one of Wall Street’s favored trades for those investors expecting that sweeping trade tariffs will crimp global growth, lift US inflation and potentially cause the Federal Reserve to refrain from interest-rate cuts this year.
“I do think, and maybe it’s just a hope, that Trump backs off from his most extreme rhetoric, especially on the deportation and tariff fronts,” said Marvin Loh, senior macro strategist at State Street Global Markets.
Monday’s whipsaw moves in equity futures and currencies, on a day when much of US trading was closed, nevertheless provided a foretaste of the uncertainty and volatility to come, according to Michael Green, chief strategist at Simplify Asset Management.
“The challenge becomes are you protecting against the risk of tariffs, or the risk that expected tariffs are not going to be put on?” Green said in an interview with Bloomberg TV. “It becomes a really challenging environment, one that likely translates to higher implied volatility.”
Trump’s inflationary domestic agenda, from tax cuts to fiscal spending, may keep the dollar strong and Treasury yields elevated.
“Any further stimulus that sparks a growth and inflation shock could lead to a Fed rate hiking cycle, for which markets are largely unprepared,” Iain Stealey, international CIO for fixed income at J.P. Morgan Asset Management, wrote in a note to clients.
The Mexican peso eased off session highs earlier amid Trump’s vow to declare a national emergency at the southern border. Trump’s plan to invoke emergency powers in order to boost domestic energy production, while shifting away from renewable sources, sparked declines in Siemens Energy AG, Enel SpA and Vestas Wind Systems A/S. Crude oil fell.
Cryptocurrency traders, meanwhile, reaped early rewards as Bitcoin touched another record after Trump and his wife Melania unveiled their own memecoins over the weekend. The digital currency traded flat after erasing earlier gains.
Here’s how Wall Street reacted as Trump was sworn into office:
Steve Chiavarone, senior portfolio manager and head of multi-asset at Federated Hermes:
Generally speaking, the market views Trump’s agenda as being pro-growth. The focus today for markets is primarily on tariff policy. There wasn’t anything really new there during the inaugural speech. That’s one reason why the dollar is softer and markers are higher. The executive orders will be the next area to watch.
Steve Sosnick, chief strategist at Interactive Brokers:
The weaker dollar is thanks to reports of milder tariffs, which should be good for stocks of the multinationals that dominate major indices. Crypto is off its highs – maybe he didn’t give it enough love in his speech.
John McClain, portfolio manager at Brandywine Global Investment Management:
The market will be aggressively trading headlines in the coming days. Longer-term patient investors should take advantage of volatile swings in sentiment.
Key events this week:
The annual World Economic Forum in Davos begins, Monday
Donald Trump to be sworn in as 47th president of US, Monday
UK jobless claims, unemployment, Tuesday
Canada CPI, Tuesday
New Zealand CPI, Wednesday
Malaysia CPI, rate decision, Wednesday
South Africa retail sales, CPI, Wednesday
ECB President Christine Lagarde and other officials speak at Davos, Wednesday
South Korea GDP, Thursday
Eurozone consumer confidence, Thursday
Turkey rate decision, Thursday
Norway rate decision, Thursday
Canada retail sales, Thursday
Trump will join the World Economic Forum for an online “dialogue”
Japan CPI, rate decision, Friday
India, euro area, UK PMIs, Friday
ECB President Christine Lagarde and BlackRock CEO Larry Fink speak at Davos, Friday
And here are the main market moves:
Stocks
S&P 500 futures rose 0.4% to the highest since Dec. 26 as of 4:04 p.m. New York time
Futures on the Dow Jones Industrial Average rose 0.4% to the highest since Dec. 17
The MSCI World Index rose 0.3%, climbing for the fifth straight day, the longest winning streak since Dec. 26
Currencies
The Bloomberg Dollar Spot Index fell 1.1%, more than any closing loss in about 14 months
The euro surged 1.4%, more than any closing gain in about 14 months
The British pound surged 1.3%, more than any closing gain in about 14 months
The Japanese yen rose 0.4% to 155.65 per dollar
The Mexican peso surged 1.3%, more than any closing gain since Jan. 6
Cryptocurrencies
Bitcoin rose 0.3% to $103,846.64
Ether rose 2.9% to $3,323.82
Bonds
The yield on 10-year Treasuries was little changed at 4.63%
Germany’s 10-year yield was little changed at 2.53%
Britain’s 10-year yield was little changed at 4.66%
Commodities
West Texas Intermediate crude fell 1.3% to $76.89 a barrel
Spot gold rose 0.2% to $2,708.21 an ounce
This story was produced with the assistance of Bloomberg Automation.
