Market snapshot: big reaction to Trump tariff tantrum

Investors ended the month nervously, and their concerns were vindicated following the weekend’s events.

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.

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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.

The Dow Jones had been ahead by more than 170 points before the nerves set in on Friday, while bond yields and the dollar both rose. This capped a difficult week which began with a sharp negative reaction to the DeepSeek AI threat, followed by the Federal Reserve choosing to stay put on interest rates given the current strength of the economy, let alone the inflationary potential for the actions which subsequently emanated from the White House.

Nor will this week be restricted to any tariff reactions. Following the Personal Consumption Expenditures report on Friday which showed inflation rising by 0.3% on the month although in line with expectations, the upcoming non-farm payrolls will provide the latest economic test of the Fed’s decision. The consensus is that 170,000 jobs will have been added in January, as compared to 256,000 the previous month, with unemployment remaining steady at 4.1% and as usual any large deviation from these estimates will add volatility.

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At the same time, the busiest week of fourth quarter earnings is also in prospect, where particularly scrutiny will fall on release from “Magnificent Seven” members Amazon.com Inc (NASDAQ:AMZN) and Google-owner Alphabet Inc Class A (NASDAQ:GOOGL), quite apart from a raft of other company reports from the likes of PepsiCo Inc (NASDAQ:PEP), Advanced Micro Devices Inc (NASDAQ:AMD), Pfizer Inc (NYSE:PFE), The Walt Disney Co (NYSE:DIS) and Ford Motor Co (NYSE:F).

Despite the volatility, the main indices navigated the difficulties and ended January ahead, with the Dow Jones having risen by 4.7%, the S&P500 by 2.7% and the Nasdaq by 1.6%. Of course, it remains to be seen whether the dubious indications for the beginning of February can be overcome in quite the same way.

Asian markets were unsurprisingly affected by the weekend’s developments, with the majority of indices falling ahead of a possible trade war escalation which could add to economic and inflationary pressures which are already of concern across the continent and China in particular. The likely retaliatory measures from China will add to the already fractious relationship with the US, where there had been some hopes that Trump’s more recent comments had seemed to be slightly more conciliatory.

Markets famously dislike uncertainty, and the fact that the UK could be within the President’s tariff sights was enough to send the main indices sharply lower at the open. The FTSE100, which had been something of a haven destination given technology volatility elsewhere, succumbed to the possibility that even its overseas earnings constituents would be caught in the crossfire.

The almost unanimous markdown of prices included particular weakness for China-exposed stocks such as the miners and Prudential (LSE:PRU), while Scottish Mortgage Ord (LSE:SMT) topped the loser board given its own focus on US tech.

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Later in the week, there could be some brief relief for a tepid UK economy when the Bank of England is expected to cut interest rates on Thursday. The consensus is currently that two more cuts may follow this year, although the Bank’s accompanying comments will provide further indications as to whether such moves remain on their radar, or indeed whether they have a more aggressive approach in mind.

In the meantime, the early market weakness was enough to erase the gains so far this year for the domestic barometer, with the FTSE250 now down by 0.3%, with gains for the FTSE100 having been trimmed to 4.9% after its record-breaking run.