The latest shifts in US tariff rules underscore a market heavily influenced by headlines, a trend that seems to be synonymous with US President Donald Trump’s time in office now and back in 2016, says IG market strategist Yeap Jun Rong.
Yeap was referring to recent trade tensions where Trump initially threatened tariffs on Mexico and Canada but agreed to pause them just days after. The one-month delay secured by Mexico and Canada were able to provide “immediate relief” for risk sentiments, says Yeap in his Feb 4 note.
“More importantly, it underscores President Trump’s willingness to negotiate, potentially with tariff moves as bargaining chips rather than firm policy decisions,” he adds.
Following the tariff pause, the markets saw a return in risk appetite among investors as US equities trimmed their losses.
“The most notable move is seen in the US dollar (USD), which erased all of Monday’s tariff-driven gains, triggering sharp reversals in USD pairs. The Australian dollar (AUD)/USD, which briefly dipped to 0.6088, is now climbing above 0.6214, while USD/Canadian dollar (CAD) and USD/Mexican peso (MXN) have fallen back below last Friday’s close,” Yeap notes. “No doubt we are treading in a highly dynamic environment, where market volatility and policy flip-flops are likely to dominate.”
After the moves, US Treasury yields remained largely stable while gold prices increased further into record-high territory. As such, Yeap believes that the yellow metal could be used as a hedge against tariff uncertainties.
See also: No doubt that Trump is trying to reset US economic structure: JP Morgan’s chief economist
Meanwhile, China has yet to reach a similar deal with the US, although the former imposed its own set of tariffs on certain US goods on Feb 4. While hopes are high that China manages to get a one-month delay in tariffs, Yeap believes Trump could still come down hard as China is viewed as a threat to US national security and economic competition.
However, should both countries reach a deal, the analyst sees that risk sentiments may find further recovery momentum, at least in the near term.
That said, tariff risks should still be monitored with the European Union (EU) next in line. The EU said that it would “respond firmly” should the US impose tariffs on their goods.
To this end, Yeap sees uncertainty in the markets ahead, with the order in which whether negotiations or tariff implementation come first, key in shaping market movements ahead.
