US markets faced significant volatility on Monday as investors reacted to President Donald Trump’s unexpected decision to impose tariffs on Canada, Mexico, and China, only to later pause the Mexico and Canada tariffs for one month. The Dow Jones Industrial Average recovered sharply from a steep intraday decline of over 600 points but still ended the session down. The S&P 500 and Nasdaq Composite also closed lower, weighed down by broader trade uncertainty. While Mexico’s commitment to deploying additional border security helped ease investor concerns, markets remained cautious as tensions with Canada, China, and the European Union continued to escalate. Treasury yields slipped, gold surged to new highs, and global equities saw a mixed reaction, with European and Asia-Pacific markets under pressure from the tariff uncertainty.

Key Takeaways:

  • Dow Recovers but Ends with a 122-Point Loss: The Dow Jones Industrial Average closed 122.75 points lower (-0.28%) at 44,421.91, after plunging as much as 665.6 points (-1.5%) earlier in the session. The index initially tumbled following Trump’s announcement of 25% tariffs on Mexico and Canada and a 10% levy on Chinese goods, sparking a widespread sell-off. However, investor sentiment improved after Mexican President confirmed a one-month tariff pause, leading to a sharp rebound. 
  • S&P 500 and Nasdaq Slump Amid Trade Fears: The broader S&P 500 fell 0.76% to settle at 5,994.57, while the Nasdaq Composite dropped 1.2% to 19,391.96. Both indices were weighed down by continued uncertainty surrounding US trade policy and fears of further escalations. 
  • European Markets Drop as Trump Threatens Tariffs on EU and UK: European stocks traded sharply lower, with the Stoxx 600 declining 0.93%, recovering from an earlier drop of 1.6%. The FTSE 100 slid 1.04% (-90.40 points) to 8,583.56, while France’s CAC 40 shed 1.20% (-96 points). Germany’s DAX dropped 1.5% to 21,405, paring steeper losses from earlier in the day. Auto stocks struggled, with the Stoxx 600 autos index down 2.4%, as Trump hinted those tariffs on European and UK goods “will definitely happen.” Meanwhile, inflationary pressures persisted in the Eurozone, with headline CPI rising to 2.5% year-over-year in January, exceeding expectations of 2.4%. The Core CPI also climbed to 2.7%, slightly above the forecasted 2.6%. Also, Eurozone Manufacturing PMI came in at 46.6, beating expectations of 46.1, signalling some improvement but still indicating contraction. 
  • Asia-Pacific Markets Plunge as Investors React to Tariff Escalations: Asian equities suffered broad-based losses after Trump’s sweeping tariff measures. Japan’s Nikkei 225 fell 2.66% to 38,520.90, with the Topix shedding 2.45% to 2,720.39. South Korea’s Kospi plunged 2.52% to 2,453.95, while the small-cap Kosdaq tumbled 3.36% to 703.8. Australia’s S&P/ASX 200 dropped 1.79% to 8,379.4. Hong Kong’s Hang Seng Index declined 0.3%, while India’s Nifty 50 and Sensex lost 0.56% and 0.5%, respectively. Chinese markets remained closed for the Lunar New Year holiday.
  • US Treasury Yields Slip as Investors Weigh Tariff Impact: The 10-year Treasury yield declined by 3 basis points to 4.535%, while the 2-year Treasury yield edged up 2 basis points to 4.255%. Investors closely monitored ISM Manufacturing PMI data, which climbed to 50.9 in January, surpassing market expectations of 49.8. Meanwhile, the Prices Paid Index rose to 54.9 from 52.5, signalling ongoing inflationary pressures, while the Employment Index improved to 50.3 from 45.4, reflecting some resilience in the labour market.
  • Oil Prices Close at One-Month Low Despite Volatility: Oil prices experienced choppy trading but ultimately settled at a one-month low amid concerns over US trade policy and supply disruptions from Canada and Mexico. Brent crude futures for April delivery inched up 29 cents (+0.4%) to $75.96 per barrel, while West Texas Intermediate (WTI) crude climbed 63 cents (+0.9%) to $73.16 per barrel.

FX Today:

  • EUR/USD Falls as Trade Uncertainty Hits the Euro: The EUR/USD pair declined to 1.0295 on Monday, posting a 0.58% loss for the session as trade concerns weighed on the euro. The pair fluctuated between 1.0335 and 1.0209, struggling to find support. The 50-day Simple Moving Average (SMA) at 1.0418 provides initial resistance, while the 100-day and 200-day SMAs at 1.0651 and 1.0762 serve as key upside barriers. The Relative Strength Index (RSI) is trending lower, signalling the potential for further weakness. If EUR/USD breaks below 1.0250, selling pressure could accelerate toward 1.0200, with a deeper decline possibly extending to 1.0150. Resistance remains at 1.0350, and a break above this level is needed to alleviate the bearish momentum. 
  • GBP/USD Struggles, Facing Downside Pressure: The GBP/USD pair edged up 0.11% on Monday, closing at 1.2404 after trading between 1.2435 and 1.2249. Despite a modest recovery, the pair remains under pressure, with key support at 1.2300 and further downside protection at 1.2200. On the upside, resistance is seen at 1.2500, followed by a major hurdle at 1.2550. While Trump’s temporary tariff pause on Mexico and Canada helped calm broader market fears, concerns over additional tariffs on the European Union kept investors cautious. The RSI remains neutral, indicating a lack of clear direction. A drop below 1.2300 would expose GBP/USD to further losses toward 1.2200, while a move above 1.2500 could shift sentiment in favour of the bulls, targeting 1.2550.
  • Canadian Dollar Hits Two-Decade Low as Tariff Battle Intensifies: The Canadian dollar (CAD) continued its sharp decline, hitting its lowest level in over two decades as tensions between the US and Canada escalated over trade tariffs. The USD/CAD pair surged to a session high of 1.4792 before closing at 1.4572, up 0.35% for the day. The pair fluctuated between 1.4792 and 1.4517, reflecting extreme volatility. Immediate support lies at 1.4500, followed by a stronger level at 1.4400. On the upside, resistance is seen at 1.4600, with further gains potentially pushing the pair toward 1.4700. A breakout above 1.4600 would reinforce bullish momentum, while a drop below 1.4500 could lead to a correction toward 1.4400. 
  • Mexican Peso Rebounds as Trump Pauses Tariffs: The Mexican peso (MXN) saw a sharp recovery after initially weakening to an almost three-year low of 21.28 against the US dollar. The MXN/USD pair jumped 1.50%, closing at 0.0489, after trading between 0.0490 and 0.0469. Investors reacted positively to the one-month tariff pause, easing concerns over immediate economic fallout. Immediate support is at 0.0485, followed by 0.0475. Resistance is seen at 0.0495, with 0.0500 acting as a key upside level. A break above 0.0495 could confirm further gains, while a move below 0.0485 could lead to a decline toward 0.0475. 
  • Gold Sets New Milestone Amid Heightened Trade Tensions: Gold prices continued their bullish trend, reaching a new milestone amid global trade uncertainty. The precious metal closed at 2,816, up 0.68% for the session, after trading between 2,772 and 2,830. Gold remains well-supported by the 50-day SMA at 2,673, with additional protection from the 100-day and 200-day SMAs at 2,668.43 and 2,533, respectively. If gold surpasses 2,830, the next key resistance stands at 2,850, with potential to reach 2,900 in the coming sessions. On the downside, a drop below 2,780 could see a test of 2,750, where buyers are likely to emerge. 

Market Movers:

  • Triumph Soars as Acquisition Deal Announced: Shares of aerospace services provider Triumph surged 33.9% after the company announced it would be acquired by affiliates of Warburg Pincus and Berkshire Partners.
  • IDEXX Laboratories Surges on Strong Revenue Performance: Veterinary healthcare company IDEXX Laboratories jumped 11.1% after posting robust fourth-quarter revenue of $954.3 million, exceeding the FactSet consensus estimate of $935.1 million. 
  • PVH Tumbles as Wells Fargo Downgrades Stock: PVH Corp., the parent company of Calvin Klein and Tommy Hilfiger, saw its stock drop 7% after Wells Fargo downgraded the stock from overweight to equal weight. 
  • Owens & Minor Crashes Over 35% on Disappointing Results: Medical supplies distributor Owens & Minor suffered a massive 35.2% drop after the company reported preliminary quarterly results that missed analyst expectations. 
  • iShares MSCI Canada ETF Declines as Tariff Concerns Weigh on Market: The iShares MSCI Canada ETF (EWC) dropped 1.4% on Monday, as investors reacted to the potential economic impact of US tariffs on Canadian imports. 
  • Tyson Foods Gains on Strong Earnings Beat: Tyson Foods saw its stock rise 2.2% after the company reported better-than-expected fiscal first-quarter earnings. The food giant posted earnings of $1.14 per share, significantly above analysts’ estimates of $0.90 per share. 

As markets digest the latest developments in US trade policy, volatility remains high, with the Dow Jones staging a late-session recovery but still closing 122 points lower, while the S&P 500 and Nasdaq fell 0.76% and 1.2%, respectively. European and Asia-Pacific markets also faced significant losses as Trump’s tariffs on Canada, Mexico, and China sparked global uncertainty. Treasury yields slipped, reflecting investor caution, while gold surged past 2,800, reinforcing its status as a safe-haven asset. Meanwhile, currency markets saw sharp moves, with the Canadian dollar hitting a two-decade low, while the Mexican peso rebounded on news of a one-month tariff pause. In equities, Tyson Foods, Triumph, and IDEXX posted strong gains, while Owens & Minor suffered a 35% plunge. With trade risks and inflation data set to drive sentiment in the coming days, investors remain focused on policy developments and market signals that could dictate the next major move.