Is the market expecting a Trump reversal?

15:07 3 February 2025

The sell off in stocks on Monday has been broad based in Europe. Although the UK’s FTSE 100 is down by less than other European indices, it is still lower by 1.3%. The Eurostoxx 50 index is down by 1.5% and the Dax is lower by 1.66%. 90% of the FTSE 100 is lower on Monday, and 87% of stocks in the Dax are in the red. US markets have also opened lower, as risk appetite has drained out of the market.

Global supply chain complexity could limit impact of tariffs

Start investing today or test a free demo

Open account Try demo Download mobile app Download mobile app

Some may think that this is a fairly mild response to a major shift in global trade policy. The reason for this is that global supply chains are complex and calculating the exact impact of tariffs, for example on a BMW car sold to a US consumer, is tricky.  A BMW that is sold to a US consumer is usually made in the US in most cases, BMW have one of their largest car plants in South Carolina. It will only be certain parts that are impacted by tariffs, not the car as a whole. This is why BMW is down by 2.68%, which is quite a knock, but not a rout.

The weakest performers in the Dax index tells us something about the market reaction to the US’s trade policy decisions. Siemens, Volkswagen, Adidas, Porche, BMW and SAP are in the top 10 weakest performers in the Dax on Monday, as autos, global apparel makers and tech are all coming under fire at the start of the week.

The sell off in US stocks explained

There are some steep declines in line for US stocks. Nearly all sectors on the S&P 500 are in the red, except for energy, which has been buoyed by the oil price rise. Chip stocks and autos are the worst effected sectors on the S&P 500 so far, followed by transport and banks. Autos, transport and semiconductors are directly impacted by tariffs, banks less so. The sell off in US banking stocks is reflective of residual concerns about the impact on US and global growth and the rising chance of a recession.

Nvidia, still reeling from the DeepSeek fall out

Nvidia is set to decline more than 3% on Monday. It is expected to be one of the worst performers in the tech space on Monday, which suggests that there could be something else at play. Apple, for example, is down just over 2% in the pre-market, even though its iPhones are directly impacted by tarr9ofs on China. This suggests that DeepSeek remains a weight on Nvidia’s share price, even if the news has moved on to tariffs and not Chinese threats to AI dominance.

Why the oil price rise might not last

The oil price is boosting the energy sector in the US today, although European energy stocks are also lower, although BP and Shell are holding up better than the rest of the index. The oil price is higher across the board, Brent is up by 1.8% on Monday and is back above $77 per barrel, the WTI price is higher by 2.7%. The reason is that Canada and Mexico are the largest external supplier of oil to the US, the prospect of tariffs could mean that oil prices in the US move higher, which is infiltrating the global oil space. Refined products are sharply higher, gasoline is up by 4%, heating oil is higher by 3% and Nat gas is surging by 8%. Refiners are more likely to pass on the full effect of tariffs to consumers, which is a concern for the Fed since this could be inflationary in the short and medium term.

Oil price rise could be temporary

However, the upside in the oil price could be short lived since we think that oil supply disruption will be limited since tariffs on oil are ‘only’ 10%, and if tariffs last for the long term, then we could see damage to the global economy which could have a long-term negative effect on oil demand.

Stock market reaction mild so far

Although the declines are sharp, there is a sense that they could have been worse. Trump is a negotiator, who is said to measure his own performance by the US stock market. The 500-point drop in the Dow Jones Industrial Average on Monday and the 1.7% slide in the S&P 500, could force Trump into negotiation mode, to try and limit the downside to US stock prices. Price action on Monday suggests that the market expects a magic bullet and temporary tariffs only. But that means that the longer the tariffs last for, the more damaging they will be to the global economy, stock markets and to risk appetite more generally. Thus, if Trump does not reverse course on tariffs, then this could be the calm before the storm for stock markets.

FX market: will Trump reverse course on his tariffs?

Unsurprisingly, the dollar and the yen are kings of the FX space on Monday, however, the selloff in FX has not been as bad as feared. While EUR/USD parity looks like a given, this pair has climbed off the lows from last night and is back above $1.0250. This is close to the lowest level since 2022, and although it is a sharp decline, it suggests there are few decent supports on the way down to parity. Added to this, the Cad and the MXN are not the weakest performers in the FX space on Monday. MXN is lower by 1.2% vs. the USD, which is another sign that the market thinks Trump could reverse course on his tariffs.

Another surprise on Monday is the gold price, after rallying last week, as traders used gold as a hedge against tariffs, the gold price is only higher by 0.66%. It is still up $18 and has made a fresh record high above $2,800, but there was not the rush to the $3000 level as some had expected when tariffs came into effect. This suggests that it could be grind higher to this key level, if tariffs are in place for the long term.  

Financial markets have reacted to Trump’s tariffs, but the scale of the reaction has been modest compared to what some expected. Is this because 1, some expect the tariffs to be toned down in the coming weeks, and thus temporary in nature, or 2, that a new US trade policy will lead to a slow burn lower in risk assets? Time will tell.  

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

Written by

Kathleen Brooks

Back

Join over 1 Million investors from around the world

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
Description
SERVERID
userBranchSymbol Expiration date 17 October 2024
adobe_unique_id Expiration date 16 October 2025
test_cookie Expiration date 1 March 2024
SESSID Expiration date 9 September 2022
__hssc Expiration date 16 October 2024
__cf_bm Expiration date 16 October 2024
intercom-id-iojaybix Expiration date 13 July 2025
intercom-session-iojaybix Expiration date 23 October 2024
xtbCookiesSettings Expiration date 16 October 2025
xtbLanguageSettings Expiration date 16 October 2025
TS5b68a4e1027
countryIsoCode
userPreviousBranchSymbol Expiration date 16 October 2025
TS5b68a4e1027
_cfuvid
intercom-device-id-iojaybix Expiration date 13 July 2025
__cfruid
__cf_bm Expiration date 16 October 2024
__cf_bm Expiration date 16 October 2024
_cfuvid
adobe_unique_id Expiration date 16 October 2025
TS5b68a4e1027
_cfuvid
xtbCookiesSettings Expiration date 16 October 2025
SERVERID
TS5b68a4e1027
__hssc Expiration date 16 October 2024
test_cookie Expiration date 1 March 2024
intercom-id-iojaybix Expiration date 13 July 2025
intercom-session-iojaybix Expiration date 23 October 2024
intercom-device-id-iojaybix Expiration date 13 July 2025
UserMatchHistory Expiration date 31 March 2024
__cf_bm Expiration date 16 October 2024
__cf_bm Expiration date 16 October 2024
__cf_bm Expiration date 16 October 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
Description
_gid Expiration date 9 September 2022
_gat_UA-22576382-1 Expiration date 8 September 2022
_gat_UA-121192761-1 Expiration date 8 September 2022
_ga_CBPL72L2EC Expiration date 16 October 2026
_ga Expiration date 16 October 2026
AnalyticsSyncHistory Expiration date 8 October 2022
af_id Expiration date 31 March 2025
afUserId Expiration date 1 March 2026
af_id Expiration date 1 March 2026
AF_SYNC Expiration date 8 March 2024
__hstc Expiration date 14 April 2025
__hssrc
_vwo_uuid_v2 Expiration date 17 October 2025
_ga_TC79BEJ20L Expiration date 16 October 2026
_vwo_uuid Expiration date 16 October 2025
_vwo_ds Expiration date 15 November 2024
_vwo_sn Expiration date 16 October 2024
_vis_opt_s Expiration date 24 January 2025
_vis_opt_test_cookie
_ga Expiration date 16 October 2026
_ga_CBPL72L2EC Expiration date 16 October 2026
__hstc Expiration date 14 April 2025
__hssrc
_ga_TC79BEJ20L Expiration date 16 October 2026
af_id Expiration date 31 March 2025
afUserId Expiration date 1 March 2026
af_id Expiration date 1 March 2026
AF_SYNC Expiration date 8 March 2024
_gcl_au Expiration date 14 January 2025
AnalyticsSyncHistory Expiration date 31 March 2024
_gcl_au Expiration date 14 January 2025

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
Description
MUID Expiration date 10 November 2025
_omappvp Expiration date 28 September 2035
_omappvs Expiration date 16 October 2024
_uetsid Expiration date 17 October 2024
_uetvid Expiration date 10 November 2025
_fbp Expiration date 14 January 2025
fr Expiration date 7 December 2022
muc_ads Expiration date 16 October 2026
lang
_ttp Expiration date 10 November 2025
_tt_enable_cookie Expiration date 10 November 2025
_ttp Expiration date 10 November 2025
hubspotutk Expiration date 14 April 2025
YSC
VISITOR_INFO1_LIVE Expiration date 14 April 2025
hubspotutk Expiration date 14 April 2025
_uetsid Expiration date 17 October 2024
_uetvid Expiration date 10 November 2025
_ttp Expiration date 10 November 2025
MUID Expiration date 10 November 2025
_fbp Expiration date 14 January 2025
_tt_enable_cookie Expiration date 10 November 2025
_ttp Expiration date 10 November 2025
li_sugr Expiration date 30 May 2024
guest_id_marketing Expiration date 16 October 2026
guest_id_ads Expiration date 16 October 2026
guest_id Expiration date 16 October 2026
MSPTC Expiration date 10 November 2025
IDE Expiration date 10 November 2025
VISITOR_PRIVACY_METADATA Expiration date 14 April 2025
guest_id_marketing Expiration date 16 October 2026
guest_id_ads Expiration date 16 October 2026
guest_id Expiration date 16 October 2026
muc_ads Expiration date 16 October 2026
MSPTC Expiration date 10 November 2025
IDE Expiration date 10 November 2025

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name
Description
personalization_id Expiration date 16 October 2026
UserMatchHistory Expiration date 8 October 2022
bcookie Expiration date 16 October 2025
lidc Expiration date 17 October 2024
lang
bscookie Expiration date 8 September 2023
li_gc Expiration date 14 April 2025
bcookie Expiration date 16 October 2025
lidc Expiration date 17 October 2024
bscookie Expiration date 1 March 2025
li_gc Expiration date 14 April 2025
personalization_id Expiration date 16 October 2026

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence
Language