Market Optimism Surges on Potential Tariff Relief
A sudden shift in market sentiment has sent European stocks and currencies soaring, following reports that US tariffs might be less severe than initially feared. The news has injected a much-needed dose of optimism into regional markets, which have been reeling from uncertainty surrounding President-elect Donald Trump’s trade policies.
Tariff Plans Take Shape
According to sources familiar with the matter, Trump’s aides are exploring tariff plans that would target critical imports, rather than imposing blanket tariffs on all countries. This more nuanced approach could help alleviate concerns about the impact of tariffs on global trade.
Euro and Stocks Rally
The euro has surged 1.2%, while European stocks have seen a significant lift, with auto shares leading the charge. The STOXX 600 has climbed 0.8%, reaching session highs. Other currencies highly exposed to US tariffs, such as the Mexican peso and Canadian dollar, have also gained ground.
Analysts Weigh In
“It appears that officials are preparing to water down the worst of Trump’s campaign promises by narrowing the scope of the tariffs,” said Kyle Chapman, FX Markets Analyst at Ballinger Group. However, the exact definition of “critical imports” remains unclear.
US Stock Futures Bounce
US stock index futures have risen 0.7-0.9%, suggesting an extension of Friday’s rally in benchmark indices. Trading remains cautious, however, ahead of Friday’s US December employment report.
Economic Data Takes Center Stage
This week, investors will be closely watching a slew of economic data, including ADP hiring, job openings, and weekly jobless claims. Any positive news could support the case for fewer rate cuts from the Federal Reserve.
Yields Rise
In fixed income, US Treasury yields have risen for a second day, reaching 4.6%. Yields have surged almost 80 basis points in the fourth quarter, with over 30 bps in December alone.
Dollar Weakens
The dollar index has fallen around 0.9% on Monday, following the Washington Post report. High yields have given the dollar a natural source of support, but the recent weakness could be a sign of shifting market sentiment.
Oil Prices Find Support
Oil prices have found support from colder weather in Europe and the US, as well as the drop in the dollar on Monday. Brent crude has risen 0.4% to $76.86 a barrel.
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