Stock markets sink, dollar rallies on Trump tariffs

LONDON: Stock markets slumped Monday (Feb 3) over concerns about the global economy after US President Donald Trump threatened to launch trade wars with Canada, China and Mexico.

Wall Street's three main indices fell sharply in early deals, but clawed back ground after Trump postponed the introduction of tariffs on Mexico for one month.

Trump announced on Saturday 25 per cent levies on imports from Canada and Mexico and 10 per cent duties on Chinese goods. Talks were still underway on Monday with Canada.

The London, Paris and Frankfurt stock markets finished in the red as Trump warned over the weekend that the European Union would be next in the firing line and did not rule out tariffs on Britain.

Shares in European automakers were hit particularly hard, with Volkswagen shedding 3.5 per cent and Jeep maker Stellantis down more than 4.5 per cent. VW makes some cars for the US market in Mexico, while Stellantis has factories in both Canada and Mexico.

Asian stock markets finished mostly in the red.

"Investors fear that this trade war will result in a significant deterioration in the global economy," said John Plassard, investment specialist at Swiss asset manager Mirabaud.

There was also a sharp selloff across the cryptocurrency sector, with bitcoin slumping almost five per cent before rebounding.

Saturday tariff announcement "caught markets somewhat off guard, despite Trump's prior hints", said Daniela Sabin Hathorn, senior market analyst at brokerage Capital.com.

"The lack of a clear economic rationale behind this decision - justified primarily as a measure to curb illegal immigration and fentanyl imports - has unsettled investors," Sabin Hathorn said.

Oil prices jumped as the US leader imposed tariffs of 10 per cent on Canadian oil imports, but they later gave up the gains.

The US dollar yo-yoed against major currencies, including the Mexican peso and Canadian dollar.

Analysts warn that the tariffs could fuel inflation and drag down economic growth.

Trump admitted that Americans may feel economic "pain" from his tariffs, but that it would be "worth the price".

China, Mexico and Canada are the top three US trade partners and have all vowed to retaliate if the tariffs go into effect.

Chris Beauchamp, chief market analyst at online trading platform IG said the uncertainty has investors dumping risk assets.    

"Faced with these unknowns, it seems probable that richly-valued US stocks like the Magnificent 7 will continue to suffer losses as investors look to book gains and wait out the storm," he said.

The so-called Magnificent 7 tech stocks include Tesla, which has a factory in Canada and saw its shares slump 4.7 per cent. Shares in Apple fell 4.0 per cent and chipmaker Nvidia dropped 2.6 per cent.   

Trump's tariff threats against Europe overshadowed a defence summit in Brussels on Monday.

"If we are attacked in terms of trade, Europe - as a true power - will have to stand up for itself and therefore react," French President Emmanuel Macron said as he arrived for the talks.