By US stocks were sent on a wild ride on Monday as investors reacted to President Donald Trump’s tariff threats against Mexico, Canada, and China.
The day opened up with steep losses for major stock indexes and cryptocurrencies, while the dollar and oil both gained. However, by the end of the day, the largest moves had been reversed. Here are some of the day’s big swings.
- The S&P 500 dropped 1.9% at its low but staged an intraday rally of 1.2% to close 0.76% lower.
- The Nasdaq Composite declined 2.4% at its low but staged an intraday 1.3% rally to close down 1.2%.
- Bitcoin declined 10% over the weekend but jumped 9.7% on Monday. By about 4:00 p.m., the world’s largest crypto was up about 3%, reclaiming the $100,000 level.
The sharp downside volatility was sparked by investors’ fear that 25% tariffs against Mexico and Canada and 10% tariffs against China would drag down economic growth and rekindle inflation, leading to a potential stagflationary environment.
But risk assets staged a turnaround after news of a constructive phone conversation between President Trump and Mexican President Claudia Sheinbaum delayed the implementation of the Mexico tariffs by one month.
Sheinbaum said Mexico would deploy 10,000 troops to the Mexico-US border in a bid to stem the flow of illegal fentanyl into the country, a key sticking point for Trump’s tariffs.
“President Trump is taking bold action to hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country,” Trump’s executive order tied to the tariffs said.
Now, investors hope that a similar development will set the stage for tariffs on Canada to be avoided or delayed. Otherwise, duties on imports from Canada will fully go into effect at 12:00 a.m. on Tuesday.
Canadian Prime Minister Justin Trudeau and President Trump were expected to speak Monday afternoon, continuing talks from earlier in the day.
The consensus on Wall Street is that the proposed tariffs against Mexico and Canada will likely be temporary if they are implemented.
“We still think that permanent tariffs on the US’s allies (Canada, Mexico) will not be a thing. That’s because concessions are an ‘easier’ way to deal with Trump’s ‘problems’ (from a cost-benefit and game-theoretic perspective), and Trump likes to make ‘deals’. Political and market pressure will also weigh on the parties to make concessions, as in 2018,” Thierry Wizman, strategist at Macquarie, wrote in a Monday note.
Meanwhile, analysts at Bank of America said that while they expect potential tariffs against Mexico and Canada to be short-lived, the 10% tariff against China will likely be permanent, granted that’s far less than the 60% tariff Trump floated against China during his campaign.
“While there might be some reductions or exclusions, we think tariffs will largely remain in place, like those implemented in 2018,” Bank of America said of the China tariffs on Monday.
But for now, with no sign that China is eager to retaliate, investors seem to be taking a wait-and-see approach to the tariffs’ impact on the broader economy, similar to what happened in 2018 when Trump launched a series of tariffs.
Macquarie
“Perhaps because the effect of tariffs is so hard to model, stock traders initially ignored the threat of tariffs in 2017 and in H1 2018. It was only after the economic impact was felt that equity prices fell in the US and globally, in H2 2018,” Macquarie’s Wizman said.
