U.S. President Donald Trump announced significant changes to the country's trade policy during a joint press briefing with U.K. Prime Minister Keir Starmer. Trump revealed plans to impose 25% tariffs on imports from Mexico and Canada, which are set to take effect from March 4 after a one-month pause. Additionally, he declared a 25% tariff on imports from the European Union. However, in a turn of events, Trump is reconsidering these threats against the EU following Starmer's visit.
Investors are closely watching these developments, as Trump's tariff threats and orders create ripples in the financial markets. The upcoming release of the Personal Consumption Expenditures (PCE) price index report, scheduled for Friday at 8:30 a.m. ET, adds another layer of anticipation. This report is a crucial inflation measure for the Federal Reserve and is expected to show a 0.3% increase from December and a 2.5% yearly rise, as per economists polled by Dow Jones.
The financial markets have already reacted to these unfolding events. The 10-year Treasury yield dropped by over four basis points, settling at 4.2444% at 3:40 a.m. ET, while the 2-year Treasury yield decreased by more than two basis points to 4.0506% at the same time. These moves reflect investor caution amid the anticipated economic shifts.
Further complicating the global trade landscape, China is set to face an additional 10% tariff on the same date as the Mexican and Canadian tariffs. The impact of these tariffs will likely influence the Federal Reserve's decisions in its upcoming meeting on March 18-19.
Economists are also keenly awaiting January's personal spending data set for release in the morning. The core PCE, which excludes volatile food and energy prices, is predicted to have increased by 0.3% monthly and 2.6% annually, according to forecasts.