Stock Market Update

The S&P 500 futures are down 103 points and are trading 1.7% below fair value, the Nasdaq 100 futures are down 408 points and are trading 1.9% below fair value, and the Dow Jones Industrial Average futures are down 668 points and are trading 1.5% below fair value.

Contracts linked to the S&P 500, Dow industrials, and Nasdaq 100 indicate solid losses at the open and equity markets overseas are struggling.

Markets are responding to President Trump imposing tariffs on important trading partners (25% on Canada and Mexico and 10% on China), stirring concerns about retaliatory measures and increased inflation. 

The dollar strengthened in response to the tariff news, leading the US Dollar Index 0.8% higher to 109.20, and oil prices are rising ($74.43/bbl, +1.85, +2.6%). 

The 10-yr Treasury yield is down seven basis points to 4.50% and the 2-yr yield is unchanged at 4.24%.

In corporate news:

• Meta Platforms (META 674.40, -14.78, -2.1%): will invest $100 bln in virtual and augmented reality, according to FT; looking to ad agencies in crafting AI advertising tools, according to The Information
• Costco (COST 966.35, -13.54, -1.4%): Teamsters says "Costco Teamsters National Negotiating Committee has reached a tentative agreement for a new contract"
• General Motors (GM 45.65, -3.81, -7.7%) and Ford (F 9.60, -0.48, -4.8%): President Trump imposes 10% tariffs on Chinese imports & 25% tariffs on imports from Canada and Mexico effective midnight tonight (Canadian energy imports will be subject to 10% tariff); countries retaliate; Tax Foundation estimates tariffs will reduce long run GDP by 0.4% & increase tax revenue by up to $1.2 trillion over 10 years
• Apple (AAPL 230.94, -5.06, -2.1%): also responding to tariff news

Reviewing overnight developments:

• Equity indices in the Asia-Pacific region started the week on a lower note with Japan's Nikkei (-2.7%) leading the retreat while markets in China remained closed for Lunar New Year. Japan's Nikkei: -2.7%, Hong Kong's Hang Seng: UNCH, China's,Shanghai Composite: HOLIDAY , India's Sensex: -0.4%, South Korea's Kospi: -2.5%, Australia's ASX All Ordinaries: -1.8%.
  • In economic data:
    • China's January Caixin Manufacturing PMI 50.1 (expected 50.6; last 50.5)
    • Japan's January Manufacturing PMI 48.7 (expected 48.8; last 49.6)
    • South Korea's January trade deficit $1.89 bln (expected deficit of $1.28 bln; last surplus of $6.49 bln). January Imports -6.4% yr/yr (expected -9.9%; last 3.3%) and Exports -10.3% yr/yr (expected -13.5%; last 6.6%). December Industrial Production 4.6% m/m (expected 0.4%; last -0.7%); 5.3% yr/yr (expected 0.7%; last 0.1%). December Retail Sales -0.6% m/m (last 0.4%) and December Service Sector Output 1.7% m/m (last -0.2%). January Manufacturing PMI 50.3 (last 49.0)
    • India's January Manufacturing PMI 57.7 (expected 58.0; last 56.4)
    • Hong Kong's December Retail Sales -9.7% yr/yr (last -7.3%). Flash Q4 GDP 0.8% qtr/qtr (last -0.1%); 2.4% yr/yr (last 1.9%)
    • Australia's January ANZ Job Advertisements 0.2% m/m (last 0.3%). December Building Approvals 0.7% m/m (expected 0.9%; last -3.4%); 5.6% yr/yr (last 7.1%). December Private House Approvals -3.0% m/m (last -1.7%). December Retail Sales -0.1% m/m (expected -0.7%; last 0.8%). January Commodity Prices -11.9% yr/yr (last -10.7%)
  • In news:
    • The weakness accompanied a jump in the dollar after President Trump confirmed the implementation of tariffs, including a 10% tariff on imports from China.
    • Automakers and apparel retailers were among the hardest hit names.
    • China's manufacturing sector remained in expansion in January by a slight margin, according to the Caixin Manufacturing PMI.
• Major European indices trade in the red as the market digests the weekend implementation of U.S. tariffs on imports from Canada, Mexico, and China. STOXX Europe 600: -1.3%, Germany's DAX: -1.7%, U.K.'s FTSE 100: -1.3%, France's CAC 40: -1.7%, Italy's FTSE MIB: -1.1%, Spain's IBEX 35: -1.3%.
  • In economic data:
    • Eurozone's January Manufacturing PMI 46.6 (expected 46.1; last 45.1). January CPI -0.3% m/m (last 0.4%); 2.5% yr/yr (expected 2.4%; last 2.4%). January Core CPI -1.0% m/m (last 0.5%); 2.7% yr/yr (expected 2.6%; last 2.7%)
    • Germany's January Manufacturing PMI 45.0 (expected 44.1; last 42.5)
    • U.K.'s January Manufacturing PMI 48.3 (expected 48.2; last 47.0)
    • France's January Manufacturing PMI 45.0 (expected 45.3; last 41.9)
    • Italy's January Manufacturing PMI 46.3 (expected 46.8; last 46.2). January CPI 0.6% m/m (expected 0.4%; last 0.1%); 1.5% yr/yr (last 1.3%)
    • Spain's January Manufacturing PMI 50.9 (expected 53.5; last 53.3)
    • Swiss January procure.ch Manufacturing PMI 47.5 (expected 49.0; last 48.4)
  • In news:
    • German automakers are under pressure amid concerns about higher costs of production and luxury consumer goods names are being pressured by concerns about weaker demand from China.
    • French Prime Minister Bayrou could face a no-confidence vote as early as Wednesday as he attempts to push through a budget.
    • European Central Bank policymaker Knot said that the disinflationary process is proceeding "painlessly" with inflation headed for the 2.0% target.
    • Standard & Poor's affirmed Germany's AAA rating with a Stable outlook.