(Bloomberg) -- A more serene mood settled over markets after a rollercoaster session on Donald Trump’s first day in office, with investors looking past the threat of tariffs to the potential boost from fiscal stimulus and tax cuts.
US stock futures, Treasuries and the dollar all gained as traders chose to focus on the prospects for economic growth and corporate profits under Trump’s second four-year term. Still, the lack of an overall narrative on trade restrictions so far underscores the risk of higher volatility across financial markets.
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“Risky assets should benefit from deregulation and tariffs emerging as not so bad as feared,” said Mohit Kumar, chief economist at Jefferies International Ltd. “For rates, less onerous tariffs and likely lower oil prices should be a positive. We do admit that there would be an additional element of volatility.”
While stopping short of imposing new tariffs on his first day in office, Trump ordered his administration to address unfair practices globally and outlined levies he expects to place on Canada and Mexico by Feb. 1. He demurred on whether he still planned to add tariffs to China and said he wasn’t considering an immediate universal tariff.
Contracts on the S&P 500 and Nasdaq 100 rose 0.4%. Bloomberg’s dollar gauge climbed 0.6%. Treasury 10-year yields dropped five basis points to 4.58%. The Mexican and Canadian currencies were among the worst-performing of 30 major currencies on Tuesday, with the peso and loonie both dropping about 1%.
Sharp declines in the Mexican and Canadian currency stood out as the worst fallout from a raft of executive orders signed by Trump, including one that declares a national emergency at the US-Mexico border. In dozens of decrees, he sought to tighten the border, narrow citizenship eligibility, remake trade ties, and withdraw the US from the World Health Organization and Paris Accords.
The new president also pledged more US oil drilling and revoked measures that had effectively blocked oil extraction from most US coastal waters.
Halliburton Co. and SLB, both oilfield services providers, gained in premarket trading.
Meanwhile, fourth-quarter earnings season resumes, with 3M Co., Netflix Inc. and United Airlines Holdings Inc. among US companies set to report on Tuesday. Traders will also also keep an eye on comments from the World Economic Forum meeting in Davos.
Investors had been on tenterhooks for the first executive orders to stem from the White House after Trump vowed to quickly implement his “America First” agenda.
In the runup to inauguration day, traders had driven up yields and stoked the dollar to a 13-month high, expecting that sweeping trade tariffs will crimp global growth, lift US inflation and potentially cause the Federal Reserve to refrain from interest-rate cuts this year.
“The fears are sometimes greater than reality,” said Robert Dishner, senior portfolio manager at Neuberger Berman. “The market is going to settle to a cadence of the domestic agenda. For now there is an evaluation.”
Here is a selection of comments made by investors and strategists:
Benoit Peloille, chief investment officer at Natixis Wealth Management:
Trump doesn’t seem to be targeting Europe specifically and if that’s broadly the case, we see some upside potential for European stocks. Our message is there are other trades out there at the moment, at least tactically, than big US tech.
Gilles Guibout, head of European equities at AXA IM:
There’s a muted reaction on European markets and that’s because we had far less worse announcements than what was expected. At the moment it doesn’t change anything to my asset allocation in Europe.
Robert Dishner, senior portfolio manager at Neuberger Berman:
The fears are sometimes greater than reality. We are seeing a decent amount of moving around, like with dollar and Mexican peso. But in the grand scheme of things, those moves aren’t all that big. What is going to happen the market is going to settle to a cadence of the domestic agenda.
Jim Reid, head of European and US credit strategy at Deutsche Bank AG:
The more positive take on trade risks has reversed overnight after Trump commented to reporters that he’s thinking of imposing 25% tariffs on Canada and Mexico on February 1st, again citing the flow of undocumented migrants and drugs into the US. Although at this stage this was an off the cuff comment to reporters last night, markets should be pretty concerned about the headlines.
Mohit Kumar, chief economist at Jefferies International Ltd.:
On balance, we see the next few weeks as leading to higher risky assets and modestly lower rates. Risky assets should benefit from deregulation and tariffs emerging as not so bad as feared. For rates, less onerous tariffs and likely lower oil prices should be a positive. The fiscal side will also likely to be not as bad as feared. However, we do admit that there would be an additional element of volatility. We are keeping our long position in the front end of US and keeping a long view for equities and credit.
Kevin Thozet, a member of the investment committee at Carmignac:
We Europeans are not currently an immediate target of Trump’ trade policy but of course we could enter a phase of rollercoaster announcements moving forward. European stocks have largely outperformed the US since the beginning of the year and we don’t see a change in trend materializing due to Trump’s announcements. We remained exposed to equities and we have no plans, as we speak, to change our asset allocations.
Chetan Seth, a strategist at Nomura Holdings Inc.:
We believe investors would need to brace for bouts of volatility and whipsaw trading driven by news reports, market chatter and social media posts. Our view is that a stabilization in Asian equities will likely only occur once the specter of tariffs is behind us, and we think we are clearly not there yet.
Key events this week:
UK jobless claims, unemployment, Tuesday
Canada CPI, Tuesday
ECB President Christine Lagarde and other officials speak at Davos, Wednesday
South Korea GDP, Thursday
Eurozone consumer confidence, Thursday
Trump will join the World Economic Forum for an online “dialogue”
Japan CPI, rate decision, Friday
India, euro area, UK PMIs, Friday
ECB President Christine Lagarde and BlackRock CEO Larry Fink speak at Davos, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.4% as of 7:48 a.m. New York time
Nasdaq 100 futures rose 0.4%
Futures on the Dow Jones Industrial Average rose 0.4%
The Stoxx Europe 600 was little changed
The MSCI World Index was little changed
Currencies
The Bloomberg Dollar Spot Index rose 0.6%
The euro fell 0.6% to $1.0351
The Japanese yen fell 0.2% to 155.86 per dollar
The Mexican peso fell 1.1% to 20.7316
The Canadian dollar fell 1% to 1.4446
Cryptocurrencies
Bitcoin rose 1.7% to $104,227.97
Ether rose 0.5% to $3,298.99
Bonds
The yield on 10-year Treasuries declined five basis points to 4.58%
Germany’s 10-year yield was little changed at 2.52%
Britain’s 10-year yield declined two basis points to 4.64%
Commodities
West Texas Intermediate crude fell 2.5% to $75.97 a barrel
Spot gold rose 0.7% to $2,726.48 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Chiranjivi Chakraborty and Julien Ponthus.