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This week marks the busiest week of Q4 earnings reporting so far. It will also include a policy decision by the Bank of England and the January employment report. This morning, however, none of that matters relative to the tariff headlines that dominated the weekend news and continue to dominate the business media this morning.
Specifically, the U.S. is imposing a 25% tariff on imported goods from Canada and Mexico (only 10% for Canadian energy) and a 10% tariff on imported goods from China. Canada has already responded with retaliatory tariff action on certain goods imported from the U.S. while Mexico and China have said they will be announcing countermeasures of their own. President Trump also said tariffs for the EU will likely be seen fairly soon.
The quandary for the capital markets is figuring out if these tariff actions are a temporary negotiating tactic or a permanent feature. The answers have vast implications for global markets, but the one certainty right now is that it has ramped up a feeling of uncertainty that is weighing on market sentiment.
The S&P 500 futures are down 100 points and are trading 1.7% below fair value, the Nasdaq 100 futures are down 410 points and are trading 1.9% below fair value, and the Dow Jones Industrial Average futures are down 629 points and are trading 1.4% below fair value.
This has been dubbed a "risk-off" move, yet it is fair to say that the fallout isn't as pronounced as one might think given the tenor of the headlines.
There have been disparate reactions in the capital markets to the tariff headlines. Stocks are obviously leaning negative at the moment, the U.S. dollar is stronger, bitcoin and cryptocurrencies are weaker, Treasuries are mixed with longer-dated securities outperforming on growth concerns, energy futures are higher amid concerns about restricted supply, and copper futures are lower on growth concerns.
Things are mixed up with inflation concerns and growth concerns on parallel tracks, seemingly destined to cross at some unknown point if these tariff actions are more permanent than expected.
In other words, if these tariff actions lead to the inflation pressures some pundits are predicting, that will eventually hurt demand, weighing on growth in a way that should invite disinflation along with weaker earnings growth prospects.
It is a lot to think about, but there has been some knee-jerk selling in affected industry groups like railroads, semiconductors, food, agriculture, liquor, appliances, autos and auto parts suppliers, trucking, and machinery to name a few.
The stock market is going to get hit at the start of today's trading, but how it opens won't matter as much as how it closes. The same can be said for other capital markets, which will also by eyeing the release of the January ISM Manufacturing PMI at 10:00 a.m. ET (Briefing.com consensus 49.1%; prior 49.3%) and listening for tariff chatter on the line.
