U.S. President Trump’s Tariff Decisions and Market Volatility

(Reuters) – U.S. President Donald Trump’s fast-changing tariff decisions have super-charged market volatility and investor uncertainty, with little respite in prospect in the days ahead.

There is potential for another Trump surprise on anything from tariffs to geopolitics, alongside the usual set events such as U.S. inflation data.

And investors are keenly watching one market that has had its best start to the year in a decade versus Wall Street.

Overview of the Week Ahead

Here is your look at the week ahead from Rae Wee in Singapore, Lewis (JO:LEWJ) Krauskopf in New York, Danilo Masoni in Milan and Naomi Rovnick and Marc Jones in London.

1. TALKING TARIFFS

Markets were cheered by Trump’s decision to suspend tariffs on Mexico and Canada hours before they were due to come into force. However, investors are unsure if the tariff talk is brinksmanship to extract concessions or will deepen global rivalries and intensify economic attacks on the U.S.

Columbia Threadneedle chief EMEA economist Steven Bell cautions that Trump may threaten tariffs again, warning of a possible trade war that could disrupt the established world order. Rivalries among countries like China, Brazil, Russia, and Iran could also challenge the dollar’s dominance in global trade.

2. PRICE POINTS

The upcoming release of a key gauge of monthly U.S. consumer prices is expected to test investor nerves, especially after Trump’s tariff threats prompted warnings from several Fed officials about inflation risks.

The January consumer price index, due on February 12, is anticipated to show a 0.3% monthly increase, according to a Reuters poll. Last month’s report indicated core CPI, which excludes food and energy, remained stable after several months, offering some encouragement to investors. However, the monetary policy outlook remains uncertain following the Fed’s pause in easing.

3. FACE-OFF

Round two of the Sino-U.S. trade war is just beginning, with investors bracing for a prolonged tit-for-tat between the world’s two largest economies. The focus remains on whether a crucial conversation between Trump and Chinese President Xi Jinping will occur, and if concessions will follow as with Mexico and Canada.

China faces its own challenges, with the anticipated stimulus measures proving elusive, causing many investors to shy away from what was once a key market. Recent Chinese consumer price data may reinforce bearish sentiment.

4. EUROPE POWERS UP

Europe Inc is showing strong performance indicators: affordable valuations, earnings growth, and positive momentum. Investors are increasingly drawn to European markets.

The STOXX 600 has achieved its strongest performance against Wall Street since 2015. Although the rally raises questions about its sustainability, potential near-term gains could arise from tariff developments and shifts in fiscal policy, particularly in Germany. European earnings growth projections for 2025 are set at 7.9%, significantly higher than last year’s 1% growth.

5. DON’T GO AWAY

Ecuador’s elections promise to be pivotal, particularly with President Daniel Noboa facing his main challenger, Luisa Gonzalez, who aims to be the first woman president.

Polls suggest Noboa could win outright, but many anticipate a second-round run-off in April. The election’s key issues include combating violent drug gangs and preventing another debt crisis following last year’s severe drought and power outages. Despite a public fallout with his Vice President, Noboa is seen as the market’s favored continuity candidate, recently enacting 27% tariffs on Mexico.