Markets Reel as Trump’s Tariffs Spark Trade War Fears, While Musk Pushes Federal Cost

Image Source : Krish Capital Pty Ltd

Index Update: The FTSE 100 index, a key benchmark index for the London stock exchange, went down around 1.28% on 03 February 2025. Basic Materials, Financials & Industrials sector has witnessed a substantial decline.  

Macro Update:  Global markets have been rattled by U.S. President Donald Trump's announcement of sweeping tariffs on Mexico, Canada, and China, raising fears of a trade war that could hinder economic growth and increase consumer costs. In response, investors have adjusted their expectations for interest rate cuts by the Bank of England, now pricing in 80 basis points of reductions by December, up from 75 bps on Friday. Meanwhile, Trump hinted that Britain might avoid tariffs despite being "out of line" on trade, suggesting a potential negotiation. British Prime Minister Keir Starmer is in Brussels, calling for stronger European support to counter Russia’s aggression and reinforcing post-Brexit UK-EU relations. Despite economic concerns, Britain’s FTSE 100 reached a record 8,692.84, marking its strongest month in over two years. The gains were driven by Trump’s unexpected decision to delay aggressive tariffs, which reassured investors and signaled a possible shift in trade strategy. 

Top Market Movers: Among top gainers on FTSE 100 index, Vodafone Group PLC (LSE: VOD) witnessed a rise of 0.87% followed by Fresnillo PLC (LSE: FRES) which gained around 0.77%. 

Commodity Update: The U.S. dollar surged Monday, driving the Canadian dollar and Mexican peso to multi-year lows. At the same time, China’s yuan hit a record low in offshore trading after President Trump’s trade war intensification. The dollar’s strength was widespread, with the euro falling to a two-year low and the Swiss franc weakening to its lowest since May. Trump imposed 25% tariffs on Canada and Mexico, and 10% on China, citing illegal immigration and the drug trade as key reasons. In commodity markets, gold fell 0.94% to $2,808.10, silver dropped 1.73% to $31.71, and copper declined 1.28% to $8,932. Brent crude rose 0.80% to $76.29, amid concerns over supply disruptions. 

Our Stance: Global markets reacted sharply to U.S. President Donald Trump's sweeping tariffs on Mexico, Canada, and China, triggering a broad selloff across equities, cryptocurrencies, and even safe-haven assets like the Japanese yen. The 25% tariffs on imports from Mexico and Canada and 10% on Chinese goods caught investors off guard, raising fears of a full-blown trade war. Oil prices spiked on concerns over supply disruptions from the U.S.'s largest crude suppliers, though worries about weaker demand limited gains. Trump acknowledged potential "short-term pain" but remained firm, downplaying expectations of a quick resolution despite planned talks with Canadian and Mexican leaders. Meanwhile, Elon Musk, leading Trump’s cost-cutting initiative, announced efforts to shut down USAID as part of a broader push to shrink federal spending under the Department of Government Efficiency (DOGE). These policy shifts have deepened market uncertainty, with investors bracing for further economic and geopolitical turbulence. 

FTSE 100 

The FTSE 100 closed at 8,673.96 on Friday, up by 0.31%, forming a bullish candlestick pattern. The index remains above the 21-period Simple Moving Average (SMA), indicating a positive short-term outlook. With the 50-period SMA providing solid support, upward momentum is expected to continue. The Relative Strength Index (RSI) stands at 74.20, reflecting strong bullish momentum without reaching overbought conditions, suggesting room for further upside. These technical factors point to continued growth, making the FTSE 100 appealing for short-term investors. On the weekly chart, the FTSE 100 gained 2.02%, closing at 8,673.96. The index remains well above the 50-period SMA at 8,186.40, with support at 8,277. Resistance is at 8,700, and a breakout above this level could push the index toward 8,800. However, a drop below 8,020 could signal downside risk. Investors should monitor these levels for insight into future price movements. 

Data Source - Refinitiv