Markets unnerved by "Tariff Man"

A look at the day ahead in U.S. and global markets

By Alun Jones, EMEA breaking news correspondent, finance and markets

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Investors fled from stocks and rushed to dollars in Monday trading in Europe and Asia, as they scrambled to process the consequences of President Donald Trump putting larger-than-expected tariffs on top U.S. trading partners.

In three executive orders, Trump imposed 25% tariffs on Mexican and most Canadian imports and 10% on goods from China, starting on Tuesday.

A customer holds a bottle as a sign that reads ''Buy Canadian Instead'' is displayed after the top five U.S. liquor brands were removed from sale at B.C. Liquor Stores, as part of a response to U.S. President Donald Trump's 25% tariffs on Canadian goods, in Vancouver, British Columbia, Canada, February 2, 2025. REUTERS/Chris Helgren

U.S. S&P 500 futures were down 1.7% and Nasdaq futures were off 2.2% in the European mid-morning, while the reaction in currency markets has been more dramatic.

Pretty much everything is getting sold against the dollar, with the Canadian dollar, euro, Mexican peso and China's yuan all in particular focus.

The loonie depreciated to as much as C$1.4792 per dollar, its weakest in over 20 years, while the peso is down over 2%.

But why the strong reaction? It's not as if investors didn't know that Trump, the self-proclaimed "tariff man", liked the idea of imposing tariffs.

It's partly a reversal of some - in hindsight, misconceived - optimism that a lack of focus on tariffs in Trump's remarks at his inauguration on Jan. 20 meant that he would hone in on other issues in the early months of his presidency.

The last couple of weeks have seen a small weakening in the dollar on the back of that. But that reversal has now, in turn, been reversed.

More importantly long term, the other reason for the large reaction is that the scale of the tariffs is larger than expected.

George Sarevlos, head of currency research at Deutsche Bank, said the announcements were at the 'most hawkish end" of the spectrum they could have envisaged and that if they went ahead the tariffs would cause a massive shock to global trade policy.

"We see immediate recessionary consequences for some of the economies involved and broad-based negative read-across to the world economy," he said.