A Look at the Day Ahead in European and Global Markets

By Wayne Cole

The week started with a bang as President Trump announced 25% tariffs on steel and aluminium imports into the U.S. during a media scrum on Air Force One. A promise of further reciprocal tariffs is expected on Tuesday or Wednesday.

At the same time, China’s retaliatory tariffs on the U.S. came into effect, and German Chancellor Scholz indicated that the EU would respond to levies “within an hour.”

Investors reacted by selling the usual suspects, leading to early slips for the Australian dollar and euro, although they have since rebounded. Wall Street futures also opened lower but are now up around 0.3%. European futures are similarly holding their ground for the moment.

Tariffs may be losing their shock value, or markets could suspect that this is a bargaining tactic and that Trump may reverse course quickly. Some analysts believe Trump is sensitive to market movements and would abandon tariffs if Wall Street took a significant hit.

However, current stability in the stock market may embolden him further.

Additionally, Trump’s confusing remarks about the Treasury market suggested that U.S. debt might not be as significant as assumed, as he claimed some of it was “fraudulent.” This raised alarm bells, as his past comments hinted at the possibility of defaulting on U.S. debt, a move analysts consider unlikely but potentially catastrophic.

These matters will undoubtedly be questioned by Fed Chair Powell when he testifies before Congress on Tuesday and Wednesday. His diplomacy will be crucial, particularly in light of the January consumer price data being released just before his Wednesday appearance.

In another note, gold reached an all-time high, buoyed by speculation that Trump might impose tariffs on the metal. This situation, combined with the popularity of gold among certain conservative commentators, has spurred a rush for physical gold in London, Switzerland, and Asia to be sent to the U.S. before new levies can be enacted. The extreme demand has overwhelmed the Bank of England’s traditional methods of releasing its bullion, causing a significant market crunch.

Key Developments That Could Influence Markets on Monday:

• Appearances by ECB President Christine Lagarde and ECB Board Member Isabel Schnabel, BoE policymaker Catherine Mann
• EU Sentix investor confidence survey
• NY Fed Inflation Expectations

(Editing by Edmund Klamann)