U.S. President Donald Trump says he plans to enforce tariffs on Canada and Mexico by Feb. 1. While some interpret his first-day statements as risk-negative, others argue they are actually risk-positive.

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U.S. President Donald Trump has announced plans to enforce tariffs on Canada and Mexico, with a proposed implementation by the beginning of February. His recent statements have sparked differing interpretations regarding market risk. Some viewed his tariff-related comments as risk-negative, whilst others suggested they may be risk-positive, particularly since the immediate focus does not include China.

Analyzing Trump's initial messages reveals a more risk-positive tone, according to some observers. The anticipated tariffs targeting China, which holds a significant role in global trade, are not expected to be implemented imminently. This delay is perceived as a relief for global markets. Additionally, the prospective tariffs on Canada and Mexico have been deferred to February, indicating a shift from a potential earlier date. This provides stakeholders time to prepare and possibly negotiate.

Furthermore, Trump's mention of European nations potentially circumventing tariffs by purchasing U.S. oil aligns with his campaign rhetoric, suggesting such tariffs are part of negotiation strategies rather than immediate policy. This may lead to reduced fears of immediate tariff implementations, encouraging market stabilization.

The effect of these developments is evident in currency markets. Most of the major currencies showed appreciable gains against the U.S. dollar following the news, though subsequent announcements regarding Canada and Mexico slightly reduced these gains for currencies like the Canadian dollar and Mexican peso. Nonetheless, the overall sentiment appears tilted towards a downside risk for the U.S. dollar without dramatic changes in the narrative.



Trump's day one package was risk-positive

Mark let's start with what we heard from President Trump then yesterday in the various formats that we heard it. Some people taking a sort of risk negative message from what he said about Canada and Mexico, others and I think you're in this camp saying well actually don't worry too much it wasn't China and it's not today so we have a little respite on that sort of risk off tariff story. Your overall assessment? I think overall it was very much a risk positive message from Donald Trump. I understand that things can change, I understand that he's considered unpredictable but we just have to take the facts face value from where we were a few days ago. You know you take this day a week ago as an arbitrary starting point. At that time it was expected that day one or day two tariffs would be announced on China to some varying degree. Now we have a study on China trade which implies nothing is coming imminently. So already that is a massive win for global markets given that China is such a key global economy and the key global trade partner around the world. So that's a big positive. The other one is that we are expecting some other tariff measures and now already for example the threatened ones on Canada and Mexico that are the ones people are most worried about today, well they've been pushed back to February 1st from potentially being January 20th or January 21st so they're already being in 11 days later. It seems like these tariffs threats for the moment, the message from yesterday is these were more about negotiations and also remember those 25% suggested tariffs by February 1st, Trump could have done them yesterday if he really wanted to. That was in response to some questions, it was kind of off the cuff and is in line with his campaign speech. Clearly there was no desire to do it yesterday. Also he made some other comments about talking about people could essentially, European countries could avoid tariffs if they kind of buy oil from the US etc which again all these things imply that those who believe the tariff threats were more of a negotiating ploy are currently in the correct camp. That may change in the future but for now the message is very much risk on and dollar negative. Well Mark talk to us about what is actually priced in then. If we're just talking about negotiations so much of this was priced in on the campaign trail when it comes to say Mexico or Canada for example, put China on the back burner, what's priced in to EM currencies right now? It's really hard to work it out exactly. I think that the fact is these currencies are significantly weaker against the dollar since the election and I think you see in the short-term reactions this morning when we are currently trading the narrative no new tariffs from day one before the Canada-Mexico comments are made, these currencies, 11 of the 16 major currencies on the Bloomberg rally by more than 1% against the dollar. We are seeing really really powerful moves. Then when we suddenly got the headline threats of 25% against Canada and Mexico by February 1st, sure they paired those gains but not so much apart from obviously CAD and Mexican peso itself. So I think overall there's an asymmetric risk here on the dollar and I think it's more likely downside without a big shift to narrative again.

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