Trump is back, but markets balk at Tariff talk

Trump may have placated financial markets with his pick for Treasury Secretary, however, he has reminded Scott Bessent who is boss, with his warning shot to Canada, Mexico and China on tariffs. The President posted on his Truth Social platform that he would impose an extra 10% tariff on Chinese goods and 25% on all goods coming from Canada and Mexico. These are his first direct comments on tariffs and tariff levels since becoming President-elect, and they have roiled markets so far on Tuesday.

Investors take shelter from the Trump social storm

There is a risk off tone to markets this morning, the yen, the dollar and the Swissie are dominating in the FX space. The Canadian dollar is the weakest currency in the G10 FX space and is down more than 1% vs. the USD this morning, the Mexican peso is lower by 1.4%. Any target that comes under Trump’s gaze is likely to get hammered by financial markets. The US is the world’s most dominant economy, and there is no real alternative for Chinese, Canadian and Mexican exports.

Will Europe be next?

This was Trump’s most direct assertion about his tariffs plan since winning the election. It suggests that China, Canada and Mexico are in his sights. The omission of Europe from his attacks may suggest that Europe is not a top priority, however, it is early days, and there are plenty of opportunities for Trump to direct his attention to Europe down the line.  European stocks are a sea of red this morning. The Eurostoxx 50 index is down more than 1%, while the FTSE 100 is the most resilient of the European indices, and is lower by 0.5%, as the UK is expected to be shielded from the worst of Trump’s tariff plans.

Trump leverages social issues in trade war

Trump is back, and he is informing the world of his policy decisions via social media. Bessent has said in previous interviews that Trump’s tariffs plans are plans only, suggesting that the reality could be different. He has also said that Trump’s negotiating tactic is to escalate, to de-escalate the situation down the line. The tariff threats were accompanied by accusations that China sends ingredients used to make fentanyl in the US, which is fueling the devastating opioid epidemic. He said that Chinese goods coming to the US will be subject to a further 10% tariff, above any additional tariffs. He also linked tariffs on Mexican goods to the flow of Migrants across the border. The drug trade and the migrant crisis are both very difficult problems to fix, and it is hard to see how China and Mexico can fix them quickly and unilaterally to ensure these additional tariffs are not applied to their exports. This is also why volatility is higher on Tuesday.

Trump is leveraging US social issues in his trade wars, which adds a new dimension to 2025 market risks. European healthcare and pharma companies are some of the weakest performers on Tuesday. If Trump stops the trade of ingredients that are needed for legitimate pharmaceutical use, it could reverberate on the pharma sector.  Although the UK could be relatively protected from Trump’s glare, Diageo, the UK drinks maker, is one of the weakest performers on the FTSE 100 today, as it is a large exporter to the US.

FOMC minutes could save the day

While Trump is dominating the agenda today, there is a plethora of economic data in the US, ahead of the Thanksgiving holiday. House price data is expected to moderate slightly, and new home sales are expected to have declined last month. Consumer confidence is also expected to pick up slightly. The main event will be the FOMC minutes from the Fed meeting earlier this month. The market is currently pricing in a 59% chance of a rate cut at next month’s Fed meeting. The market is not fully convinced a rate cut is coming, even though FOMC member Neel Kashkari said that he would support a rate cut in December. Today’s minutes should add some clarity to the situation. If they signal that a rate cut is likely, it could be a much-needed catalyst to a recovery in market sentiment. US stock market futures are also pointing to a weaker open later today.

We could see volumes decline from today, as the US gears up for Thanksgiving. This could exacerbate markets, and moves could be exaggerated in the coming days. Trump’s tariff talk is a reminder that his posts on social media can be market-moving events, even if his assertions never see the light of day.