Saxo Morning Call

Trump tariffs kick markets into risk-off mode

Clare MacCarthy
Senior Editor, Saxo Bank

Equity markets worldwide are reeling this morning after US president Donald Trump met a key pledge of his presidential election campaign by slapping tariffs on imported steel and aluminium in order to protect US domestic interests. From next week, US imports of steel will be hit with 25% tariffs while the rate for aluminium will be 10%.

"The reaction in FX is relatively muted," says John J Hardy, Saxo's head of forex strategy. While the US dollar isn't the centre of attention in this trade war, the Canadian dollar is exposed as the country's economy is virtually a satellite of its southern neighbour, he says. Japan's yen, meanwhile, has gained: "A fall in risk appetite globally almost always causes a stronger yen". 

The Trump news also sees EURUSD back in the range and as long as this momentum is maintained, bulls will likely be encouraged. That said, looming European risk events, including the Italian election at the weekend, are likely to make themselves felt into next week.


But it is equity markets that are bearing the brunt of Trump's trade war. "Europe and China have already responded that they will retaliate and the tariffs could boost inflation in some segments of the economy," says Peter Garnry, Saxo's head of equity strategy.

Such spillover, he said, could affect manufacturers of cars, airplanes, and drinks cans in the case of aluminium, while for steel construction industries would be exposed. On a promising note, however, Garnry notes that a 30% steel tariff imposed by former president George W. Bush back in 2002 was repealed only a year later following strong retaliation from US trade partners.

Finally today, crude oil is range-bound and on the defensive after posting its first monthly decline in the past six months. "US trade tariffs may raise the cost of US shale oil production while slowing growth due to higher transportation costs," says Ole Hansen, Saxo's head of commodity strategy.


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