EU and UK stock markets hit by global trade war fears as JPMorgan says Trump administration may be ‘business unfriendly’ – business live | Business

The leader of Ontario, Canada’s most populous province, has announced he’s ripping up a contract with Elon Musk’s Starlink internet services in response to the sweeping tariffs on Canada announced by Donald Trump last weekend.

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Ontario Premier Doug Ford also declared he is banning American companies from provincial contracts in the province until US tariffs are removed.

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Ford posted on X:

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Every year, the Ontario government and its agencies spend $30 billion on procurement, alongside our $200 billion plan to build Ontario. U.S.-based businesses will now lose out on tens of billions of dollars in new revenues. They only have President Trump to blame.

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We’re going one step further. We’ll be ripping up the province’s contract with Starlink. Ontario won’t do business with people hellbent on destroying our economy.

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Starting today and until U.S. tariffs are removed, Ontario is banning American companies from provincial contracts.

Every year, the Ontario government and its agencies spend $30 billion on procurement, alongside our $200 billion plan to build Ontario. U.S.-based businesses will…

— Doug Ford (@fordnation) February 3, 2025

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With 30 minutes until Wall Street opens, US stock index futures are still down significantly in early pre-opening trading.

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The S&P 500 E-mini futures are down more than 1.5%, while the Nasdaq is on track for a 1.7% drop.

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Samer Hasn, senior market analyst at XS.com, says:

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The losses for US stocks come as tariffs on imports from China, Canada and Mexico are set to go into effect this week.

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These losses also reflect investors’ concerns about the potential impact of these tariffs on the US economy. Donald Trump began to acknowledge this in a tweet yesterday when he said that the US could face some pain due to the tariffs.

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This “pain” could take many forms, including a potential rise in prices in the US, which will ultimately affect consumers, in addition to the fact that these tariffs will lead to retaliatory measures from these three countries – and those who will follow them – through the imposition of counter-tariffs and restrictions on goods exported from the US. While agricultural products, alcohol and American cars appear to be among the most prominent targets of these retaliatory measures that have already been threatened, according to The New York Times.

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The Times also quoted experts as saying that the pain resulting from the escalation of the trade war will be represented by slowing economic growth, rising prices and crippling American industries, in addition to making China a more powerful global trading centre.

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Time for a quick recap.

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Stock markets across Europe have fallen, following losses in Asia-Pacific markets, after Donald Trump decided to impose new tariffs on Canada, Mexico and China last weekend.

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News of the new trade levies, which kick in tomorrow, has sent shares sliding in London. The FTSE 100 share index is now down 1.3%, a drop of 115 points, which would be its biggest one-day drop since last October.

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European markets are also deep in the red, with Germany’s DAX down 1.9%, France’s CAC off 1.8% and Spain’s IBEX down 1.5% in a “Trump tariff tantrum”.

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Earlier, Japan’s Nikkei index fell by 2.6%.

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Wall Street is expected to tumble when trading begins at 9.30am local time, or 2.30pm GMT.

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The US dollar has surged since Trump announced 25% tariffs on Canadian and Mexican imports (with a 10% rate for Canadian oil), and a 10% rate for China.

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This is pushing the euro closer to parity against the US dollar, and weakened the Canadian dollar to a 20-year low.

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The oil price, though, has risen, on predictions of supply disruption, while metal prices have been hit by growth fears.

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Economists fear that the tariffs could push Canada and Mexico into recession later this year.

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JP Morgan analysts have warned there is a risk that Trump’s policy mix is tilting into a business-unfriendly stance.

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They told clients:

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This weekend’s actions challenge our underlying view that the Trump administration will strive to limit disruptive policies as it balances its desire to reduce engagement with the world with a commitment to support US businesses.

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In short, the risk is that the policy mix is tilting (perhaps unintentionally) into a business-unfriendly stance.

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Deutsche Bank have calculated that US trade levies are heading to their highest levels since the 1940s.

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BNP Paribas have warned that the new tariffs will be “an inflationary shock for the US”.

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Britain’s FTSE 100 share index is on track for its worst one-day fall in almost four months.

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Concerns about the tariffs announced against Canada, Mexico and China last night – and fears that Europe could be hit soon too – are weighing on stocks.

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The FTSE 100 is currently down 111 points, or 1.3%, which would be its biggest one-day drop since 8th October last year.

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Investors are shunning riskier assets due to fears of a full-blown trade war, says Matthew Ryan, head of market strategy at global financial services firm Ebury:

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“The unveiling of some savage tariffs from the Trump administration over the weekend has wreaked havoc in financial markets.

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“It is perhaps not the size of the trade levies that has caught markets wrong-footed, but both the hastiness at which they will be imposed and the speed of the retaliatory response from authorities in Canada and Mexico. We have on our hands a full-blown trade war and one that, worryingly, may have only just begun, with President Trump hinting that the EU will be next to feel the wrath of his tariff policies.

\n “There appears to be no economic rationale for these trade restrictions, and the big fear for investors is that these tariffs could act to significantly weaken global growth in 2025.

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“This creates an extremely unpleasant environment for risk assets, and a favourable one for the dollar, particularly given the growing threat of higher Federal Reserve rates for longer.

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Scottish Mortgage Investment Trust (-4.2%), which holds stakes in many US tech giants, is the top faller, followed by copper producer Antofagasta (-3.75%).

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Diageo (-3.6%) is close behind, amid concerns that its sales into the US from Mexico and Canada will be hit by these new tariffs (see earlier post).

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JP Morgan analysts are concerned that the policy mix of the Trump administration is tilting towards a “business-unfriendly stance”.

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That questions one of the market’s core hopes over the Trump administration.

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Following shock tariff announcements on Canada and Mexico, a team led by JPMorgan Chase’s chief economist Bruce Kasman warned that this weekend’s announcements point toward a materially different policy mix than had been built into their forecasts for 2025 and 2026.

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They wrote:

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“In short, the risk is that the policy mix is tilting (perhaps unintentionally) into a business-unfriendly stance.”

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JPMORGAN: “Is this a business friendly administration?” pic.twitter.com/qNSeTN6ngk

— James Pethokoukis ⏩️⤴️ (@JimPethokoukis) February 3, 2025

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UPDATE: JP Morgan also told clients:

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A trade conflict with the US’s closest economic partners has begun and all indications are that these actions are a start to a widening conflict.

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And they warn that Canada and Mexico could both be pushed into recession by the trade war, if it lasts for six months or more:

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Model estimates suggest that the size of a sustained 25% tariff hike will be large enough to throw the Mexican and Canadian economies into recession, and this outcome will be our inclination if these policies are maintained for six months.

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The sectoral composition of North American trade highlights concentrated impact in the transportation, energy, capital goods, and industrial supply sectors. But the deep integration of the North American economy points to broad sectoral effects if the tariff hikes are sustained

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Wall Street is still expected to drop sharply when trading begins, in over four hours time.

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The Dow Jones industrial average is expected to drop by around 1%, while the tech-focused Nasdaq is down 1.8% in the futures market.

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Russ Mould, investment director at AJ Bell, says:

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“The prospect of a full-blown trade war has spooked investors as they weigh up the prospect of widespread retaliation by countries on the receiving end of Donald Trump’s tariff frenzy.”

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“Affected countries aren’t going to take the hit lying down and a tit-for-tat scenario is now looking real. That could result in higher inflation and put a stop to further interest rate cuts for the time being – exactly the opposite of what equity investors want to happen.

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“Higher prices could hurt demand, and there might be a trickle-down effect that knocks business and consumer confidence and feeds into weaker economic activity.

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The price of oil has jumped this morning, as traders anticipate supply disruption due to the US tariffs announced last weekend, which include 10% on Canadian oil.

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The price of a barrel of US crude oil has risen by 2% to $74 per barrel, while Brent crude – the international benchmark – is up 1.2% to $76.57.

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Saxo’s strategy team say:

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Oil prices surged, led by US WTI, after Trump imposed significant tariffs on various imports, including crude oil from Canada and Mexico, raising concerns about higher gasoline and diesel costs for US consumers.

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But… demand for oil could suffer if a trade war hits global growth, weakening take-up of energy.

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The Markets 360 team at BNP Paribas have warned that the new tariffs will be “an inflationary shock for the US”.

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They predict that US inflation will ‘rise sharply’ in the months ahead – due to the direct impact of tariffs being passed onto consumers, and ‘second round’ effects such as higher wages.

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They told clients this morning:

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  The announcement of higher US trade tariffs confirms our core assumption that Donald Trump’s campaign promises should be taken literally and seriously.

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  In fact, the announced increase in tariffs were even larger and came faster than we had pencilled in.

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  In turn US consumer prices should rise sharply over the coming months, while tariffs should put the brakes on economic growth.

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  This cements the Fed’s ‘on hold’ stance, with the direction of the next move to be determined by the balance of growth, inflation and market reaction.

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  For the rest of the world, the increase in protectionism is a clear net negative for growth, not least because the risk of a tit-for-tat escalatory trade war has risen.

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  We continue to see a more ambiguous impact on inflation outside of the US, and thus the implication for other central banks will depend in large part on starting domestic economic conditions.

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The US stock market is also heading for heavy falls when it opens later today, as Richard Hunter, Head of Markets at interactive investor, explains:

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February seems likely to begin with a Trump tariff tantrum, with very early futures prices signalling declines of more than 600 points for the Dow Jones, and declines of 2% or more for the benchmark S&P500 and Nasdaq indices.

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This follows the announcement on Saturday that the President would be introducing 25% tariffs on Mexico and Canada, and 10% on China. Each of the affected countries threatened retaliatory action, prompting fears of a trade war which could impact corporate earnings, supply chains and economies more generally. An unintended consequence could even be that countries look to lessen their reliance on the US, which could weaken the currency in due course.

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While there is a glimmer of hope for some easing of the tariffs, with the President reportedly planning talks with Mexico and Canada today, the speed of the measures so soon after his inauguration has taken many by surprise.

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European stock markets are a sea of red in early trading, after Donald Trump rattled investors by signing off on tariffs on China, Canada and Mexico last weekend.

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Germany’s DAX index has fallen by 2% at the open, while France’s CAC 40 share index is down 1.9%.

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Spain’s IBEX has dropped by 1.7% and Italy’s FTSE MIB has lost 1.4%.

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Naeem Aslam, chief investment officer at Zaye Capital Markets, says investors are bracing for heightened uncertainty in global trade and economic stability, adding:

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These downturns are driven by investor anxiety about the broader impact of tariffs on the global economy, particularly as European economies are highly intertwined with U.S. trade policies.

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Britain’s stock maket has joined the global selloff triggered by Donald Trump’s imposition of tariffs on Canada, Mexico and China last weekend.

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The blue-chip FTSE 100 index, which tracks the one hundred largest companies listed in London, has fallen by 1.25% at the start of trading.

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The FTSE 100 share index has shed 111 points to hit 8562 points, falling back from the record high hit last Friday.

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Nearly every share is down, led by asset managers Polar Capital (-4.5%) and Intermediate Capital Group (-3.75%).

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Mining firm Antofagasta (-3.5%), and Scottish Mortgage Investment Trust (-3.7%) are also among the top fallers.

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Metal prices have fallen today, as president Trump’s 10% tariff on imports from China rattles the markets.

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Benchmark copper fell by 1.05% to $8,953 a metric ton early this morning, its lowest level since 6 January.

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The three-month aluminium contract fell 1.4% to $2,558, the lowest in over two weeks.

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LME zinc fell 1.2% to $2,708 a ton, lead shed 0.7% to $1,936.5, tin eased 0.9% to $29,845 and nickel lost 0.4% to $15,145, Reuters reports.

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Here’s a chart showing how Canada’s currency fell to its weakest level in more than 20 years overnight.

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chart showing the Canadian dollar against the US dollar (higher = weaker)”,”caption”:”A chart showing the Canadian dollar against the US dollar (higher = weaker)”,”credit”:”Photograph: LSEG”}},{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”

The loonie (as it’s known in foreign exchange circles) fell almost 1.48 per US dollar, its lowest level since 2003, amid a general surge in demand for the US dollar (updated).

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Kathleen Brooks, research director at XTB, says:

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The immediate market impact late on Sunday was a sharp move higher in the US dollar. EUR/USD fell below $1.02 at one stage but has since recouped losses and is back above this level.

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The Mexican peso initially fell 2% at the open, USD/MXN rose to its highest level since 2020, which is a fairly modest early reaction considering how negative these tariffs could be for the Mexican economy.

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The Canadian Loonie also suffered a sharp selloff and fell to its lowest level since 2003.

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Channelling The Bangles, Deutsche Bank strategist Jim Reid predicts a “manic Monday’ in the markets.

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He tells clients:

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Standby for a manic Monday as the world tries to come to terms with the “shock” tariff announcements from Mr Trump’s administration on Saturday night. I say shock but all Trump did was follow through on exactly what he’s been saying he’s going to do since November. The market has refused to take that threat seriously though, completely under-pricing the risks. So, this leaves the weekend news as a severe shock.

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Reid points out that the 25% tariffs on Canada and Mexico, and an additional 10% on China’s imports, will have a sizeable impect:

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These three countries make up around 40% of imported US goods, at around $1.35tn. To put this is some perspective, in the first Trump administration, the US targeted around $350bn of Chinese goods. So this is huge versus anything seen for decades with regards global trade and at face value takes us back to the protectionist period between the two world wars in terms of scale of tariffs.

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And for Canada and Mexico, he adds, it could be a sharp economic shock:

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In terms of implications, if implemented and prolonged, Canada and Mexico would likely go into an imminent recession and potentially see a bigger shock than Brexit was for the UK.

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After a torrid day, Japan’s Nikkei 225 share index has closed for the day down 2.66%.

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The Nikkei shed 1,052 points to finiish at 38,520 points, as traders digested last weekend’s tariff announcements.

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IG analyst Tony Sycamore explains that Donald Trump’s move was more hawkish than anticipated:

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The 25% tariff on Canada and Mexico will take effect this Tuesday, undermining hopes for a one-month delay. It also included the possibility of additional tariffs if these countries retaliate, with Trump also indicating that tariffs on Europe are imminent.

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This weekend’s announcement also introduced a 10% tariff on China, contrary to market expectations of a later introduction, likely after easier negotiations with Canada and Mexico.

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The pound is also suffering from the strength of the US dollar, as fears of a global trade war rattle markets.

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Sterling has dropped by a cent, or 0.9%, against the dollar to as low as $1.2246, its weakest level in almost two weeks.

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That’s a slightly smaller fall than the euro, which is down 1.15% against the US dollar to $1.024.

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As flagged in the opening summary, Trump has said new tariffs on the EU will “definitely happen”, but suggested a deal with the UK could be worked out.

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There has been much analysis on China’s rather muted response to Trump’s tariff threats both in the lead in to and aftermath of Saturday’s announcement. Some have put it down to the weakness of China’s domestic economy and it’s eagerness to get to the negotiating table and ward off Trump’s earlier election campaign threats of 60% tariffs.

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The Wall Street Journal is reporting that China’s initial proposal to tariffs imposed by US President Donald Trump’s administration will centre on restoring the “phase one” trade deal signed in 2020 during Trump’s first term.

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As part of its effort to prepare for negotiations … China’s initial proposal will center on restoring a trade agreement Beijing signed in early 2020 with the first Trump administration but didn’t implement.

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The so-called Phase One deal required China to increase purchases of American goods and services by $200bn over a two-year period. While Trump himself has described Phase One as the “greatest deal” ever made, many trade experts and business executives called it unrealistic to begin with.

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Having failed to deliver on its pledge under the deal to increase US purchases, Beijing now is preparing to talk to the Trump administration about areas where China can buy more from the US, the people said.

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Bloomberg, meanwhile, reports that with Trump’s levies set to take effect just after midnight on Tuesday, Xi has a range of tools to respond beyond reciprocal tariffs. Options include export controls on critical minerals and market access restrictions to some American firms, according to Gary Ng, senior economist at Natixis SA. A series of laws passed since Trump’s first term give China greater sway over domestic business deals in the name of national security.

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Even so, the situation is also more complicated for China compared with the first trade war, both at home and abroad.

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Bloomberg Economics estimates Trump’s initial levy could knock out 40% of Chinese goods exports to the US, jeopardizing 0.9% of China’s gross domestic product. Goldman Sachs Group Inc. said the additional 10% tariff would weigh on real GDP growth by 50 basis points this year, though it noted that Trump’s action “is less severe than market participants and Chinese policymakers feared.”

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“If Chinese policymakers were indeed preparing for worse, then they are likely to react in a restrained manner for the time being and to adjust course later if needed,” Goldman Sachs economists said in a note on Monday.

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Shares of Japanese and South Korean automakers and their suppliers led declines in Asia on Monday, as exporters across the region were walloped by US President Donald Trump’s introduction of sweeping tariffs on Mexico, Canada and China.

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The move by Trump, though widely expected, knocked some of the world’s biggest manufacturers, as investors grappled with the prospect of weakening demand from the world’s top economy and, more worryingly, the possibility of a downturn in global growth, Reuters reports.

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Toyota, the world’s top automaker, and smaller rival Nissan fell more than 5%. Honda tumbled more than 7%.

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Nissan has two plants in Mexico, where it makes the Sentra, Versa and Kicks models for the U.S. market. It exports about 300,000 vehicles to the US a year.

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Honda sends 80% of its Mexican output to the US market, and its chief operating officer Shinji Aoyama warned in November it would have to think about shifting production if the U.S. were to impose permanent tariffs on imported vehicles.

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South Korea’s Kia Motors which has a factory in Mexico, fell nearly 7%. South Korean electric vehicle battery firms and battery materials makers, which had plans to build factories in Canada to supply to GM, Ford and other companies slumped.

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Donald Trump has threatened to widen the scope of his trade tariffs, repeating his warning that the European Union – and potentially the UK – will face levies, even as he conceded that Americans could bear some of the economic brunt of a nascent global trade war.

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It comes as Trump’s 25% tariffs on Mexico and Canada, and 10% tariffs on China, announced on Saturday, sparked retaliation from all three countries. Mexico and Canada have vowed levies of their own while China and Canada are seeking legal challenges.

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While Trump said new tariffs on the EU will “definitely happen”, he appeared to take a softer line on the UK, citing a good relationship with prime minister Keir Starmer while saying tariffs still “might happen”.

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“The UK is out of line but I’m sure that one, I think that one can be worked out,” he said.

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Trump acknowledged the sweeping tariffs he has imposed on Mexico, Canada and China may cause “short term” pain for Americans as global markets reflected concerns the levies could undermine growth and reignite inflation.

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“We may have short term some little pain, and people understand that,” he said. “But long term, the United States has been ripped off by virtually every country in the world.”

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Here’s a summary of the latest market moves and developments as Asian markets, cryptocurrencies and US and European stock futures slumped in Asian trading hours on Monday:

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  Stocks in Hong Kong, fell nearly 2% while China’s markets remained closed for the lunar new year holiday break.

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  Japan’s Nikkei share average tumbled as much as 2.3% in early trading, and Korea’s Kospi fell as much as 2.4%. Taiwan’s Taiex fell 4.4% at the open, led by a more than 6% plunge in semiconductor heavyweight TSMC.

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  In the US, S&P 500 futures slid 1.6% and Nasdaq futures slumped 2.2%. European futures fell as much as 3.4%.

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  The US dollar shot to a record high of 7.3765 against the Chinese yuan in offshore trading, and its highest against the Canadian dollar since 2003 and the strongest against the Mexican peso since 2022.

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  The euro fell by as much as 2.3% in response to Trump’s latest tariff threat, to near parity with the US dollar at $1.0125, the lowest since November 2022, before recovering to reclaim levels above $1.02.

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  Bitcoin was down by more than 6% to about $93,000. Ether, the second-largest cryptocurrency by market value, fell as much as 27% to $2,135, before paring some losses.

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