Trump's Inaugural Day Triggers Global Market Turmoil: Tariff Threats, AI Investment, and Monetary Policy Adjustments

Trump's Inaugural Day Triggers Global Market Turmoil: Tariff Threats, AI Investment, and Monetary Policy AdjustmentsOn January 21st, the first day of President Trump's term, a series of executive orders triggered significant global market fluctuations. Trump's mention of potentially imposing a 25% tariff on imports from Mexico and Canada starting February 1st immediately put pressure on the Mexican Peso and Canadian Dollar, increasing risk-aversion in the market

Trump's Inaugural Day Triggers Global Market Turmoil: Tariff Threats, AI Investment, and Monetary Policy Adjustments

On January 21st, the first day of President Trump's term, a series of executive orders triggered significant global market fluctuations. Trump's mention of potentially imposing a 25% tariff on imports from Mexico and Canada starting February 1st immediately put pressure on the Mexican Peso and Canadian Dollar, increasing risk-aversion in the market. While Goldman Sachs and other institutions viewed Trump's statement that he wasn't ready to immediately implement comprehensive tariffs as a positive signal, boosting European and US stock and bond markets, many others remained cautious, closely monitoring potential retaliatory measures from Canada and Mexico. Simultaneously, other policy initiatives from the Trump administration, including promoting US energy production, announcing a $500 billion AI infrastructure investment plan, and establishing a "cryptocurrency enforcement group," also had profound market impacts. The prospect of a European Central Bank (ECB) interest rate cut and weakening news from the UK labor market further exacerbated global economic uncertainty.

Trump's Trade Policy Fuels Market Volatility

Trump's inaugural day announcement of potential 25% tariffs on Mexican and Canadian imports quickly became the market's focal point. This caused the Mexican Peso and Canadian Dollar to fall; the Peso dropped over 1% at one point, while the Canadian Dollar hit a five-year low. Market concerns about Trump's trade policies led investors to seek safe-haven assets, driving up gold prices. Spot gold rose approximately 1.3% at the close, surpassing $2740 and nearing its October high of $2790.10.

Although Trump stated he wasn't ready to implement comprehensive tariffs, Goldman Sachs and other institutions interpreted this as indicating less urgency than anticipated, alleviating some market panic and pushing up European and US stock and bond markets. However, many institutions remained cautious, believing tariffs remain a possibility and closely watching for retaliatory actions from Canada and Mexico. This heightened market volatility, requiring investors to closely monitor developments.

Impact of Other Trump Administration Policy Initiatives

Beyond tariff policies, other Trump administration initiatives significantly impacted the market. Trump's plan to boost US energy production, increasing the supply of US oil, led to oil prices falling over 2.5%. Meanwhile, Trump's announcement of a $500 billion AI infrastructure investment plan and the push for the US Securities and Exchange Commission (SEC) to establish a "cryptocurrency enforcement group" impacted related sectors and market sentiment. The planned formation of Stargate, a joint venture between OpenAI, SoftBank, and Oracle, further reflects the investment boom in the AI sector.

Global Central Bank Monetary Policy Movements

ECB Governing Council member Kazimir stated that three to four consecutive ECB interest rate cuts are feasible. The President of the Bundesbank, a hawkish member, anticipates being close to the ECB's inflation target by mid-year, which would allow for rate cuts. Market expectations point towards a potential ECB rate cut from 3% to 2.75% next week, with further cuts possible after January. Weakening news from the UK labor market increased expectations of a Bank of England rate cut, with the CEO of Lloyds Banking Group predicting three cuts this year. These anticipated monetary policy adjustments significantly impacted global financial markets.

US Stock Market Performance

On Trump's inaugural day, US stock markets performed strongly overall, with all three major indices rising. The S&P 500 closed up 0.88% at 6049.24; the Dow Jones Industrial Average rose 1.24% to 44025.81; and the Nasdaq Composite gained 0.64% to 19756.78. Small-cap stocks performed particularly well, with the Russell 2000 index closing up 1.85%. Tech stocks showed mixed results; Apple fell 3.19%, primarily due to rating downgrades from two firms reflecting investor concerns about weak iPhone sales and AI failing to act as an expected growth catalyst. Google's Class A shares hit a record high. The energy sector fell due to President Trump's executive orders and a stronger dollar.

The "Magnificent Seven" tech stocks showed divergence: Nvidia rose 2.27%, Amazon 2.11%, Google A 1.05%, Meta 0.6%, while Microsoft fell 0.12%, Tesla 0.57%, and Apple 3.19%. Chip stocks generally rose, with the Philadelphia Semiconductor Index closing up 1.29%. AI-related stocks also generally rose, with Oracle climbing 7.17% following Trump's AI infrastructure investment announcement.

Other Market Performances

Chinese stocks traded mixed, with the Nasdaq Golden Dragon China Index closing down 0.36%. Among popular Chinese stocks, XPeng rose 6.2%, Li Auto 5.6%, Baidu 1.1%, NetEase and Yum China approximately 1%, while Bilibili fell 2.3%, Nio 3.9%, and New Oriental 23%.

European stocks closed slightly higher on Tuesday, with Germany and the UK reaching new closing highs. The pan-European STOXX 600 index rose 0.40% to 515.98. However, European automotive stocks generally fell as investors assessed the potential threat of US tariffs.

Bond and Currency Markets

Following Trump's inauguration, the 10-year US Treasury yield fell nearly 6 basis points, with longer-term US Treasury yields generally dropping over 5 basis points. The currency market increased bets on rate cuts, with German and UK government bond prices leading gains at the long end. The US dollar index fell after initially rising, closing near unchanged and hovering near two-week lows. The Japanese Yen briefly rose above 155.

Commodities Market

Affected by Trump's tariff and energy policies, US oil prices fell over 2.5%, and New York natural gas dropped over 4.8%. Spot gold rose over 1%, exceeding $2740. Most London industrial metals fell, with aluminum and zinc closing down over 1%.

Individual Stock Highlights

• Apple: Jefferies and Loop Capital downgraded the stock, warning of potentially disappointing revenue.

• Meta: Preparing to launch Oakley-branded smart glasses this year, developing smartwatch and AirPods competitor products.

• iLearningEngines: Executives are facing shareholder lawsuits, and the stock closed down 15% amid allegations of revenue misrepresentation.

• Quantinuum: Secured $800 million in investment, to be an early recipient from New Mexico's quantum initiative.

• United Airlines: Q4 earnings exceeded expectations, driving after-hours gains exceeding 4% at one point.

• Netflix: Q4 subscriber growth significantly exceeded expectations, prompting an upward revision of the 2025 outlook, sending after-hours gains above 14% at one point.

• Intel: Rumored to be a takeover target, with Elon Musk mentioned as a potential buyer, leading to pre-market gains exceeding 5% at one point.

• 3M: Q4 earnings exceeded expectations, sending the stock up over 6% at one point.

In summary, President Trump's policy actions on his inaugural day triggered significant global market volatility. The combined effect of tariff threats, AI investment, and monetary policy adjustments created a complex and uncertain market landscape. Investors need to closely monitor subsequent policy developments and government responses.