U.S. dollar jumps and stock futures sink 1% on tariff news

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The U.S. dollar surged and stocks tumbled as the beginning of U.S. tariffs ushered in a trade war threatening economic growth around the world.

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The Bloomberg Dollar Index jumped 0.9 per cent, trading near a two-year high, after U.S. President Donald Trump announced tariffs on Canada, Mexico and China, and warned that European levies are coming. The Canadian dollar fell to its lowest since 2003 and the euro weakened.

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The impact of tariffs ricocheted across global markets. S&P 500 futures slid 1.4 per cent, while U.S. oil prices climbed on worries about a disruption to supply. European carmaker shares fell, with Volkswagen AG and Stellantis NV shedding more than five per cent. Crypto was also hammered as Ether plunged 11 per cent in a broad move away from risky assets.

Trump’s move is the most extensive act of protectionism taken by a U.S. president in almost a century, with knock-on effects on everything from inflation to geopolitics and economic growth. Goldman Sachs Group Inc. strategists said there’s a risk of a five per cent slump in U.S. stocks because of the hit to corporate earnings, while RBC Capital Markets estimated the range at five per cent to 10 per cent.

“He seems to be like a poker player who’s betting his whole stash on the first hand,” Steven Englander, global head of G-10 FX research at Standard Chartered Plc, told Bloomberg TV on Monday. “The market just wasn’t prepared for it.”

The worry among investors is that U.S. tariffs will force companies to raise prices in response, causing inflation to accelerate and consumers to pull back on spending. An initial analysis by Bloomberg Economics estimates the tariff impact may knock 1.2 per cent off US economic growth and add 0.7 per cent to the core personal consumption expenditures price index.

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“We doubt that many companies will be able to avoid the impact of tariffs,” said Kathleen Brooks, research director at XTB Ltd. “Their actual implementation and the retaliatory tariffs that followed felt like crossing the Rubicon.”

Emerging markets also suffered large losses. The Mexican peso weakened more than two per cent. The South African rand dropped 1.5 per cent after Trump said the U.S. would halt all future funding to the country because of a new law that allows the state to seize private land in the public interest.

In energy markets, tariffs on imports from Canada and Mexico threaten to disrupt North America’s tightly integrated oil market and push up gasoline prices for American motorists. West Texas Intermediate jumped 2.4 per cent. Reflecting expectations that refiners will face higher costs, gasoline futures soared as much as 6.2 per cent in New York.

Among individual movers in Europe, Julius Baer Group Ltd. shares dropped more than 10 per cent after the Swiss wealth manager announced job cuts and a governance revamp. Raiffeisen Bank International AG plunged after Bloomberg reported that the Vienna-based lender has clients with ties to the Russian military.

This story was produced with the assistance of Bloomberg Automation.

With assistance from Jan-Patrick Barnert

Bloomberg.com

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