(Bloomberg) — The dollar surged while equity markets and digital currencies plunged after US President Donald Trump made good on his threat to impose tariffs on imports from Canada, Mexico and China.
European and US stock futures slumped, while an index of Asia-Pacific shares dropped the most in nearly six months in response to the punitive measures taken against some of America’s biggest trading partners. Fears the action will stoke price pressures also spurred a rise in the yields on two-year US Treasuries.
The selloff ricocheted across asset classes on Monday, with traders responding by slashing positions in a range of tokens that had benefitted from Trump’s pro-crypto statements. The euro extended its decline after Trump said tariffs on EU goods would “definitely happen.”
The rapid escalation in tensions constitutes 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. Trump said he plans talks on Monday with Canada and Mexico ahead of the tariffs coming into force.
“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 TV on Monday. “The market just wasn’t prepared for it.”
Behind the rally in the dollar is the bet that tariffs will fuel inflationary pressures and keep US interest rates elevated, while also hurting foreign economies more than the US and adding to the greenback’s safe-haven lure.
Haven bets fueled a drop in the yield of 10-year US Treasuries, while the Canadian dollar sank to its weakest since 2003. Emerging market currencies such as the Indian rupee and the Mexican peso also posted losses.
Traders are on alert for big swings in assets that are considered at the front lines of any trade war. While that should include China, Hong Kong’s share market reopened after a multi-day holiday and declined less than those of Japan, South Korea and Taiwan.
Mainland China’s share market reopens on Wednesday. For foreign exchange traders, the fix on China’s yuan will be key for signs of how much officials will try to slow its decline.
China is eager to get trade talks going and is readying an opening bid to try to head off greater tariff increases and technology restrictions, the Wall Street Journal reported. Offshore yuan pared losses after the report.
In response to the US announcement, Canadian Prime Minister Justin Trudeau unveiled a 25% counter-tariff, while Mexican leader Claudia Sheinbaum pledged retaliatory levies. China’s Commerce Ministry issued a statement vowing “corresponding countermeasures,” without elaborating, and vowed to file a complaint to the World Trade Organization.
The cost to insure the bonds of Asian companies against default increased on the tariff news, with the Markit iTraxx Asia ex-Japan gauge on course for its steepest daily increase in nearly six months.
Automakers such as General Motors Co. and Stellantis NV, which have global supply chains and massive exposure to Mexico and Canada, could see significant moves later in the session. Electric vehicle manufacturers Tesla Inc., and Rivian Automotive Inc. could also feel the pinch. Mentions of the word “tariffs” are already surging on earnings calls.
Corporate earnings due this week include Amazon.com Inc. and UBS Group AG.
The tariff announcement also sparked a surge in the price of US benchmark West Texas Intermediate as levies on imports from Canada and Mexico threaten to disrupt North America’s tightly integrated oil market and push up gasoline prices for American motorists. The potential disruption to US oil supply saw the discount of WTI to Brent narrow.
“Financial markets may undergo a painful adjustment process in the coming weeks as participants begin to take the president seriously and literally,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
Some key events this week:
Eurozone HCOB Manufacturing PMI, CPI, Monday
UK S&P Global Manufacturing PMI, Monday
Atlanta Fed President Raphael Bostic speaks on the economic outlook, Monday
Alphabet, UBS, BNP Paribas earnings, Tuesday
New Zealand unemployment, Wednesday
Toyota earnings, Wednesday
China Caixin services PMI, Wednesday
Eurozone HCOB Services PMI, PPI, Wednesday
Eurozone retail sales, Thursday
UK rate decision, Thursday
Amazon earnings, Thursday
Mexico rate decision, Thursday
India rate decision, Friday
Canada unemployment, Friday
US nonfarm payrolls, unemployment, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 2% as of 1:15 p.m. Tokyo time
Nikkei 225 futures (OSE) fell 2.7%
Japan’s Topix fell 2.4%
Australia’s S&P/ASX 200 fell 1.7%
Hong Kong’s Hang Seng fell 0.7%
Euro Stoxx 50 futures fell 2.4%
Currencies
The Bloomberg Dollar Spot Index rose 1.2%
The euro fell 1.3% to $1.0230
The Japanese yen fell 0.3% to 155.69 per dollar
The offshore yuan fell 0.3% to 7.3446 per dollar
Cryptocurrencies
Bitcoin fell 3.1% to $94,027.54
Ether fell 14% to $2,513.34
Bonds
Commodities
West Texas Intermediate crude rose 1.8% to $73.81 a barrel
Spot gold fell 0.6% to $2,782.68 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Michael G. Wilson.
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