Global stock markets remained largely unaffected by the fear of tariffs on Monday, even as new trade levies loomed on the horizon. Late Monday night, 25% tariffs on steel and aluminum imports came into force, encompassing both raw materials and finished products. This significant move by the United States government is set to shake up international trade dynamics.
However, futures markets began to show signs of stress as the new tariffs came into effect. Investors are now bracing for potential downturns, with the S&P 500 and Eurostoxx 50 indices expected to open lower. This cautious tone is echoing across financial markets, as stakeholders weigh the possible repercussions of the tariffs.
Despite these tensions, the EUR/USD exchange rate held steady above 1.0350 during European trading hours on Wednesday. Meanwhile, gold prices consolidated after a recent pullback from record highs of $2,943, struggling to regain traction below $2,900 early Wednesday.
In currency markets, the GBP/USD pair is maintaining its recovery gains, hovering near 1.2450 during the European session. On the other side of the Atlantic, the US dollar is standing firm ahead of an anticipated US inflation report. Investor sentiment is being influenced by President Donald Trump's plans for reciprocal tariffs through executive action.
The latest US Consumer Price Index (CPI) data is due later in the day and is expected to reveal an annual increase of 2.9% for January. Economists are closely monitoring this figure as it could provide insights into future monetary policy adjustments.
Francois Villeroy de Galhau, a policymaker at the European Central Bank, has expressed concerns over the potential economic fallout of these trade policies. He warns that President Trump's protectionist approach could have detrimental long-term effects.
"Protectionism is a seductive short-term policy, but in the long term it is a losing strategy.” – Francois Villeroy de Galhau
Interestingly, despite these looming economic challenges, France appears poised to avoid an economic recession in 2025. This optimistic outlook contrasts with concerns about inflationary pressures in the United States. Market analysts predict that the core CPI will remain above the Federal Reserve's target, at 3.1% compared to the previous year.
As these economic developments unfold, investors are adopting a cautious approach. The global market's ability to navigate these turbulent waters will depend on how effectively policymakers and economic leaders manage these challenges.