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Investing.com - U.S. stock futures swoon following U.S. President Donald Trump’s decision over the weekend to place fresh tariffs on some of America’s closest trading partners. Canada, Mexico, and China were all targeted with levies, with Trump arguing the measures are necessary to help stem the flow of illegal immigrants and the opiate fentanyl into the U.S. The dollar strengthens in the wake of the announcement, while oil rose and the price of gold dropped from record levels.
1. Futures swoon following Trump’s tariff announcement
U.S. stock futures sank on Monday as investors assessed the ramifications of President Trump’s new tariffs against Canada, Mexico and China.
By 03:31 ET (08:31 GMT), futures linked to the benchmark S&P 500 had fallen by 82 points or 1.6%, Nasdaq 100 futures had shed 355 points or 1.6%, and Dow futures had fallen by 515 points or 1.2%.
Over the weekend, Trump slapped 25% import tariffs on traditional trading partners Canada and Mexico, with Canadian energy products facing a 10% levy. A tariff of 10% was also placed on goods incoming from China.
The changes, which are due to come into effect on Tuesday, have exacerbated fears over renewed global trade tensions. Canada and Mexico have announced plans to impose their own tariffs on U.S. goods, while China’s Ministry of Commerce intends to challenge the actions at the World Trade Organization.
Economists have suggested the tariffs could cause a period of faster inflation and weaker growth in the U.S., and potentially fuel recessions in Canada and Mexico. Both countries rely heavily on trade relations with their larger neighbor.
Trump has said the measures may lead to some "short-term pain" for Americans. He added that tariffs on the European Union would "definitely happen", although he did not specify when they would be implemented.
In Asian markets on Monday, stocks slumped, with car manufacturers Toyota (TYO:7203), Honda (TYO:7267), and (OTC:Nissan (TYO:7201) -- all of whom construct some vehicles in Mexico and export products to the U.S. -- falling particularly sharply.
2. Dollar strengthens, oil rallies, gold falls
The U.S. dollar strengthened in the wake of Trump’s tariff announcement, as analysts warned the levies could push up inflation -- and potentially lessen the impetus for the Federal Reserve to roll out further interest rate cuts.
In a note to clients, analysts at Capital Economists predicted that the "resulting surge" in price gains in the U.S. from the tariffs and "other future measures" could come "even faster and be larger" than they had initially anticipated.
"Under those circumstances, the window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut," the analysts said.
The rise in the dollar ate into the appeal of gold, making the yellow metal more expensive for other currency holders. Gold fell, halting a short-lived run-up over the past week to record highs that was underpinned by safe haven demand.
Meanwhile, oil prices climbed as traders worried the tariffs could disrupt supplies to the U.S., the world’s biggest crude consumer, although fears that the measures could hit global fuel demand mitigated gains.
3. Cryptocurrencies drop
The prices of cryptocurrencies also tumbled, as the appeal of riskier assets was dented by escalating global trade tensions.
Bitcoin, the world’s most popular digital token, dipped to a three-week low, sliding under the $100,000 level. Ethereum, the second-largest cryptocurrency by market capitalization, also declined by more than 16%.
Along with the impact of the tariffs on market sentiment, some disappointment over a perceived lack of immediate moves to bolster the crypto industry have hit digital assets.
During his campaign for president, Trump vowed to back the sector, boosting hopes for an era of looser regulations following a period of scrutiny during the Biden administration. These expectations supported a spike in cryptocurrencies in recent months, with Bitcoin hitting an all-time peak when Trump was sworn in for his second term in the White House in January.
4. Chinese factory activity growth weakens as Trump tariffs hit sentiment
Chinese manufacturing activity grew less than expected in January as U.S. tariff fears weighed on the country’s economic prospects, private purchasing managers’ index data showed on Monday.
The Caixin/S&P Global manufacturing PMI came in at 50.1 in January, below expectations of 50.6 and the prior month’s reading of 50.5. However, it was above the 50-point mark separating expansion from contraction.
Sentiment improved among Chinese manufacturing firms at the start of the year on expectations of supportive government policies, the survey said, although the threat of U.S. tariff still dampened the outlook.
The figures come just a week after the release of official PMI numbers, which showed that the manufacturing sector unexpectedly shrank in January.
5. Earnings, data ahead this week
The tariffs could be a major talking point during a slew of corporate results and major U.S. economic data this week.
Highlighting the earnings agenda are Google-parent Alphabet (NASDAQ:GOOGL) and e-commerce giant Amazon (NASDAQ:AMZN), which are set to unveil their quarterly figures on Tuesday and Thursday, respectively.
As it was with these companies’ Big Tech peers Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) last week, analysts will also likely be keen to hear how Alphabet and Amazon executives view their artificial intelligence spending strategies following the emergence of a low-cost AI model from Chinese start-up DeepSeek.
DeepSeek said the model showed comparable performance to OpenAI’s ChatGPT, but used less-advanced data and cost only around $6 million to build. Although doubts remains around the statement, it was enough to roil markets last week and pose questions around the necessity of billions of dollars in AI expenditures by some of Silicon Valley’s most prominent businesses.
Elsewhere, investors will have the chance to parse through fresh labor market data, including the January jobs report.
Economists forecast that the U.S. added 154,000 roles last month, down from a blockbuster 256,000 in December. Meanwhile, the unemployment rate is tipped to come in at 4.1%, matching the prior month’s pace. Average hourly earnings growth is seen at 0.3%, also equaling December’s rate.
The figures will help to determine the state of labor demand at the beginning of the new year and may factor into how the Fed, which slashed interest rates several times in 2024, approaches monetary policy in the months to come.