Check back for updates throughout the trading day
U.S. equity futures extended declines in early Tuesday trading, matching downside moves for oil prices and the dollar, as markets reacted to the fast-changing dynamic on tariffs and the potential for a protracted trade war between the world’s two biggest economies.
Tariff headlines dictated much of the market’s direction on Monday, with President Donald Trump’s decision to impose import levies on goods from Canada, Mexico and China sending shares sharply lower, only to pare some of those losses following a 30-day reprieve for the U.S.’s two closest trading partners.
Goods coming from China, however, were hit with an extra 10% levy today, causing a quick and significant reprisal from Beijing, which slapped tariffs on crude oil, farm equipment and other key goods and launched an anti-trust probe into Google parent Alphabet (GOOGL) just hours before its fourth quarter earnings update after the close of trading.
That’s raised the prospect of a tit-for-tat trade war that has the potential to both disrupt global supply chains and stoke inflation pressures, leaving the Federal Reserve with little option but to hold its lending rate steady until the impacts are fully understood.
President Donald Trump placed an added tariffs on goods imported from China, and plans to meet President Xi Jinping later this week.
Andrew Harnik/Getty Images
“It’s true that tariffs typically represent a one-off price adjustment that wouldn’t necessarily or durably impact the inflation rate,” said Lauren Goodwin, economist and chief market strategist at New York Life Investments. “However, tariffs are accentuating a larger trend towards supply chain movements – one that is prompting durable and capital-intensive investment in the U.S. and global economies.”
“The question for investors and policymakers regarding inflation is therefore less about the initial impact of tariffs, and more about the longer-term inflationary impact of supply chain re-globalization in response to a more volatile global business landscape,” she added.
Related: Goldman Sachs analysts warn on Trump tariff impact for stocks
The market’s immediate reaction to last night’s pullback on tariffs aimed at Canadian and Mexican imports was to sell the U.S. dollar, which retreated from its two-year high against a basket of its global peers and was last marked 0.4% lower at 108.493.
Treasury bond yields, meanwhile, inched higher, with 10-year notes last pegged at 4.581% and 2-year notes trading at 4.259% heading into the start of the New York session.
Stocks remain under pressure, however, and look set for a third consecutive day of decline with the S&P 500 called 7 points lower at the start of trading and the Dow Jones Industrial Average priced for an 85 point pullback.
The tech-focused Nasdaq, meanwhile, is set for a modest 2 point decline, with early gains from Nvidia (NVDA) and Alphabet offsetting declines for Tesla (TSLA) and Microsoft (MSFT) .
More Economic Analysis:
Major fund manager reveals stock market forecast for 2025Surprising December retail sales report upends inflation betsJobs report has big implications for Fed rate bets, Treasury yields
In Europe, the Stoxx 600 was marked 0.11% lower in Frankfurt as investors fretted over the potential for new levies from the White House on goods exported from the EU, with Britain’s FTSE 100 down 0.14% in London.
Overnight in Asia, Japan’s Nikkei 225 finished 0.72% higher in Tokyo, with the region-wide MSCI ex-Japan index rising 1.67%
Related: Veteran fund manager issues dire S&P 500 warning for 2025
