The markets are talking about just one thing: Trump!! The TPP midweek update.

It’s all about Trump.

Stocks ticked higher and currencies swung after Donald Trump’s inauguration. So far, the market is taking the lack of immediate action as good news. He’s a fan of investment and he’s keen to build growth in the US, but at what cost to the rest of the world? Unfortunately, he doesn’t seem to care.

He has threatened many things, but few will alter the global economy as much as what he might eventually do with tariffs.

The unexpected lack of action on day 1 (Trump had long promised levies of as much as 60% on Chinese goods and almost half that on Mexican and Canadian products from the get-go) sent Treasury yields tumbling while the S&P 500 climbed 0.9%. The small-cap Russell 2000 surged 1.9% as a risk-on vibe captivated traders. However, the tariff reprieve could be brief.

President Trump has widened his tariff threats to include China and the European Union on his second day back in office after day one saw Canada and Mexico in his sights.

“We’re talking about a tariff of 10% on China, based on the fact that they’re sending fentanyl to Mexico and Canada,” Trump said during an event at the White House on Tuesday, specifying 1^st February as a possible date.

“Other countries are big abusers also, you know it’s not just China,” Trump said. “We have a $350 billion deficit with the European Union. They treat us very very badly, so they’re going to be in for tariffs.”

The threats echo comments made throughout Trump’s campaign for a return to the White House and since his sweeping 5^th November victory. But, the only actual action taken so far is the call for a review of trade practices that are due by 1^stApril, potentially giving China and others almost 10 weeks to avert new levies or address his demands.

China’s government reiterated their opposition to tariffs, with Ministry of Foreign Affairs spokeswoman Mao Ning saying Wednesday that there are no winners in a trade war, adding that China would safeguard its national interest.

Earlier Tuesday, Chinese Vice Premier Ding Xuexiang said China would expand its imports, saying the country did not seek a “trade surplus.” Bloomberg News has reported that people familiar with Trump’s discussions around China have said that he is interested in opening negotiations with China.

Chinese stocks fell Wednesday after Trump’s latest comments, with the onshore benchmark CSI 300 Index headed for its first decline in five days and the Hang Seng China Enterprises Index the worst performer in Asia.

While the 10% level is lower than the potential levies of 60% on Chinese products that Trump floated during his election campaign, investors are bracing for more volatility.

“It only gets tougher from here,” said Xin-Yao Ng, an investment director at abrdn Plc in Singapore. “It’s a reminder that Trump will do something, because the first day might have given some the false impression that he might not. More gradual tariffs might also delay or reduce the force of stimulus that the market wants.”

Trump on Tuesday also reiterated his earlier threat to hit Canada and Mexico with tariffs, emphasizing that this wasn’t an attempt to force renegotiations of the three nations’ free-trade deal, but was because they had allowed illegal immigrants and drugs to cross into the US.

“While the Trump administration’s instant actions do not lead to new tariffs being imposed immediately, the memorandum demonstrates a clear and methodical effort to lay the foundations for future tariff actions and other measures,” according to a report on the executive order by law firm Baker McKenzie.

US Equities extended their gains for the year today (Wednesday), with the S&P 500 hovering near 6,100.

Netflix surged 11% after closing 2024 with its biggest quarterly subscriber gain in history. Travelers Cos. and Procter & Gamble also climbed after strong results. Oracle Corp. also soared 7% on a $100 billion joint venture with SoftBank Group Corp. and OpenAI, an effort unveiled with President Donald Trump aimed at speeding up the development of artificial intelligence.

The FTSE 100 has started the week well despite several pieces of bad news. Employment came out higher than expected at 4.4% and average earnings increased again to 5.6% year-on-year in the 3 months to November – the most in 6 months. Add this to the recent increases in oil and gas prices and high inflation could well be back soon.

On top of this, we heard today that debt interest costs pushed up UK government borrowing more than predicted last month, putting Chancellor of the Exchequer Rachel Reeves on course to overshoot official forecasts this year.

The budget deficit totalled £17.8 billion in December, more than double the £7.7 billion recorded a year earlier and the highest for the month since the pandemic, the Office for National Statistics said Wednesday. Economists had expected £14.2 billion.

This left the shortfall in the first nine months of the fiscal year at £129.9 billion, £4.1 billion higher than forecast by the Office for Budget Responsibility at the time of the budget on 30^th October.

The worse-than-expected borrowing figures came despite a downward revision of £1.1 billion for the eight months through November. January typically delivers a large surplus but Reeves will still find it difficult to keep borrowing for the full fiscal year to the OBR’s £127.5 billion forecast.

Gilts opened lower after the data, marginally underperforming European peers, with the 10-year yield rising one basis point to 4.60%. The pound slipped, trading 0.1% weaker at 84.48 pence per euro.

Mainland European stocks have also rallied with the Stoxx Europe 600 climbing 0.6% on Tuesday surpassing September’s record close.

European Central Bank Governing Council member Jose Luis Escriva said another reduction in borrowing costs at next week’s meeting is very probable as recent data confirm the outlook for inflation.

“The market expects a further cut of 25 basis points,” the Spanish Central Bank governor told Bloomberg Television’s Francine Lacqua on Wednesday in Davos. “It feels like this is the most likely scenario,” he added, describing such an outcome as “fine.”

The ECB is widely anticipated to continue its rate-cutting cycle when officials meet in Frankfurt on January 29-30, following four reductions in 2024. With inflation on track to reach to 2% later this year, analysts predict further moves in the coming months.

Policymakers speaking in recent days have backed such expectations. President Christine Lagarde told CNBC earlier Wednesday that gradual rate reductions are likely to continue, while Klaas Knot had no objections to investor expectations for moves at the ECB’s next two meetings, though he declined to speculate beyond that.

On Tuesday, Bundesbank President Joachim Nagel said reaching the so-called neutral level that neither restricts nor constrains economic activity should be achievable by mid-year.

Commodities

Oil rose after President Donald Trump threatened tariffs on China and the European Union, while traders continued to assess the fallout from unprecedented US sanctions on Russia.

Brent crept above $79 a barrel following a run of declines in recent sessions. European equities set a fresh record Wednesday, while the dollar fell, aiding commodities priced in the currency.

Canada has started sending a flood of crude to the US to beat potential levies after the president pledged measures against America’s northern neighbour. Canadian crude producers are trying to “push as much volume out of the market as possible” before the tariffs, according to Rystad Energy. Levies, which Trump said could start from 1^st February, would result in higher gasoline costs for American consumers, Goldman Sachs Group Inc. warned last year.

“The oil market at present seems more sensitive to trade restriction threats,” said John Evans, an analyst at brokerage PVM. “Russia and weather considerations are not done with oil, they just do not at present outweigh the uncertainty revolving around tariffs.”

Crude still remains higher so far this year, helped by the broad US sanctions on Russia and cold weather in the northern hemisphere. A historic winter storm was dropping bitter cold from Texas to North Carolina Wednesday, upending regional energy markets. On Russia, Trump said he’s likely to impose more penalties on Moscow if President Vladimir Putin doesn’t come to the table to negotiate on Ukraine.

Many commodities have been ticking up over the last month. Oil is up 10% as are both UK and European gas. Milk, rice and potatoes are also higher while tea and sugar have fallen.

Gold price sticks to positive bias for the third successive day on Wednesday and trades near its highest level since November 1 during the first half of the European session. It also set a new record UK Pound price at London's 3pm benchmarking auction, fixing above £2228 per Troy ounce with a rise of 40.2% from this time last year.

On our platform:

This week has so far been a quiet one for TPP.

The leveraged trackers are enjoying a few days in the Trump induced sunshine, following markets as they track in an upwards trajectory.

However, many of our Long or Flat strategies remain flat after taking profits last week. They're waiting patiently for an opportunity like a Cobra.

Our active strategies have a small BUY bias at the moment, and similar to our long or flats, they're no doubt waiting on an opportunity.

With Trump gaining power the upcoming years should be very interesting. If ever there was a President who cared deeply about making money and the financial markets, this is the man. However, no one knows for sure how markets will react over his term.

Could we witness growth like never before, or could a disaster we weren't expecting happen?

Like I said, no one knows for sure.

You get the impression with Trump that it might be one or the other. He doesn't seem to do 'in the middle'.

At TPP the only thing we're very confident of is that volatility will increase.

This could play into the hands of the majority of our strategies and it could bode well for the future.

Could the market climate favour us more than most in the coming years? We hope so.

Enjoy the rest of your week, and good luck in the markets.

‍

‍

‍