AI doom and tariff gloom

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By Mike Dolan, Editor-at-Large for Finance and Markets

The confusion about U.S. tariffs since Friday was compounded by another wave of AI jitters on Wall Street on Monday, with all the main stock indexes dropping back more than 1%. Selling was concentrated once again in the software and payments sectors most vulnerable to AI developments.

I'll get into that and more below.

But first, check out my latest column on why the Fed's next move could be up, not down.

And listen to the latest episode of the Morning Bid daily podcast. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

Today's Market Minute

President Trump on Monday warned countries against backing away from recent trade deals with the U.S., saying that if they did, he would hit them with much higher duties.
Check out the winners and losers from last week's Supreme Court tariff decision. And learn why the temporary 15% tariffs are potentially vulnerable to new legal challenges.
President Trump will deliver the State of the Union address to Congress on Tuesday at a fraught moment, with slumping approval ratings and anxieties over Iran and affordability rising ahead of November's midterm elections.
Oil prices have been a disinflationary force for economies since mid-2024, but that may be about to change, writes ROI Markets Columnist Jamie McGeever.
A serious US-Iran confrontation could cause severe disruption to oil supplies, but the US and China hold the keys to managing such a shock, argues ROI Energy Columnist Ron Bousso.

AI doom and tariff gloom

While there was no obvious trigger for the renewed AI angst, the smoldering anxiety in those sectors all month was fed by another viral research note, from little-known research house Citrini, sketching out worse-case scenarios in the labor market and wider economy from a rapid AI rollout.

The note - which reads a bit like the research equivalent of a disaster movie set in the future - had been circulating all weekend. But its impact says more about AI nervousness in the wider market than anything else.

And stock futures seemed to have calmed down ahead of today's bell as tomorrow's results from chip giant Nvidia now loom large.

Meantime, the U.S. tariff confusion took another twist on Tuesday as new duties came into effect at 10% rather than the 15% announced by President Trump on Saturday. This will no doubt add to calls from around the world for more clarity on U.S. trade policy.

Many countries are wondering if existing bilateral trade deals are now defunct, alongside countervailing pledges of investment in the U.S. The EU has again delayed ratification of the pact it agreed with Washington last year, while the UK held out the possibility of retaliatory action if its own deal is not honored.

All this makes an uncomfortable backdrop for President Trump's State of the Union speech later on Tuesday - and may well prompt him to dwell more on geopolitical issues, such as the standoff with Iran, than his signature economic policies.

On that score, global crude oil prices continued to climb on Tuesday ahead of a third round of U.S.-Iran nuclear talks on Thursday.

Perhaps significantly for inflation-worriers, the year-on-year Brent crude price turned positive on Tuesday for the first time in more than a year.

U.S. Treasuries were steady ahead of the week's big auctions.

Elsewhere, mainland Chinese markets returned from the New Year holidays, and stocks rose 1%, while the yuan continued its 2026 surge against the dollar to its strongest levels in almost three years.

Japan's yen, on the other hand, weakened again. Traders cited two stories. The first was a report that Japanese Prime Minister Sanae Takaichi has voiced concerns about the Bank of Japan raising interest rates further, and the second was China's decision to prohibit the export of dual-use items to 20 Japanese entities that it says supply Japan's military.

However, both Japan and South Korea's main stock indexes rose on Tuesday.

Next Fed move a hike? Bostic's parting shot raises alarm

Amid the consternation about the U.S. Supreme Court's quashing of President Donald Trump's emergency tariffs, markets may have missed a surprising take on Federal Reserve policy - that it's not inconceivable the next interest rate shift could be up.

A blizzard of information from early Friday onward - a big GDP miss, a hot inflation reading, the court judgment and then Trump doubling down on higher global tariffs - left most investors bewildered as the new week began.

That flood of data and drama may also explain why a very pointed warning from a retiring regional Fed boss failed to get much spotlight.

A centrist-turned-hawk, Atlanta Fed chief Raphael Bostic steps down at the end of this month after almost nine years at the helm. But his Friday parting shot underlined just how much resistance there is within the Fed to any further easing – let alone the deep rate cuts Trump is demanding and some of his appointees to the Fed appear willing to endorse.

Graphics are produced by Reuters.

Read the full column

Today's key chart

Graphics are produced by Reuters.

Novo Nordisk's next-generation obesity drug CagriSema underperformed Eli Lilly's Zepbound in a head-to-head trial, the Danish drugmaker said on Monday - marking another setback for the firm in the increasingly competitive weight-loss drug market.

Novo's shares plunged 16% on the news to their lowest since 2021 and below levels seen when it first launched its Wegovy blockbuster. At $183 billion, Novo's market cap is now less than a third of the peaks early last year.

Today's events to watch

U.S. Conference Board Consumer Confidence Index for February (10:00 AM EST)
President Trump delivers State of the Union address to U.S. Congress (9:00 PM EST)
U.S. 2-year note auction
Atlanta Fed's Raphael Bostic, Boston Fed's Susan Collins, Chicago Fed's Austan Goolsbee, and Richmond Fed's Thomas Barkin all speak

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