A look at the day ahead in U.S. and global markets from Mike Dolan
Old and new economy stocks are keeping Wall Street pumped up this week as the tech and steel sectors advance on a mix of tariff news and an artificial intelligence buzz. Treasuries are in thrall to Federal Reserve boss Jerome Powell’s latest trip to Congress.
U.S. President Donald Trump raised tariffs on steel and aluminum imports on Monday to a flat 25% “without exceptions or exemptions,” in a move he hopes will help struggling U.S. firms in the sector. However, this action risks sparking a multi-front trade war. Steel imports account for 23% of American steel consumption in 2023, with Canada, Brazil, and Mexico being the largest suppliers.
Trump also announced plans to impose reciprocal tariffs on all countries that impose duties on U.S. goods within two days. These tariffs will target cars, semiconductors, and pharmaceuticals. Additionally, Trump mentioned speaking to Chinese President Xi Jinping since taking office on January 20, without disclosing the topics of their conversation.
The tariffs have resulted in a lift to U.S. steelmakers, with shares in overseas rivals experiencing marginal declines. For example, Thyssenkrupp and Salzgitter in Germany were both down 1% earlier. U.S. metals firms such as Nucor, U.S. Steel, and Steel Dynamics saw gains of 4% on Monday, while Alcoa was up 2%.
Despite the steel tariffs, currency markets have largely ignored the news, with the dollar only slightly higher. Gold, however, reached another record high, briefly hitting $2,942.70 per ounce before retreating.
Stock futures gave back some index gains ahead of Tuesday’s bell, partly due to rising long-term Treasury yields as Powell prepared for his semi-annual congressional testimony and ahead of the week’s significant debt sales.
Tech stocks also saw a surge on Monday, with AI chipmakers Nvidia and Broadcom rising almost 3%. Elon Musk’s consortium offering $97.4 billion to buy the nonprofit that controls OpenAI added to the excitement in the AI sector. Tesla, however, saw a 3% decline on the news.
The latest tallies on the corporate earnings season show annual aggregate profit growth for the S&P500 tracking close to 15%, significantly higher than the 10% expected at the beginning of the year. Annual revenue growth is also higher than anticipated, at almost 5%. These profit gains, robust economic growth, tight labor markets, and rising import tariffs give the Fed reason to pause its credit easing campaign.
Powell is likely to indicate this in his testimony later in the day, with markets now only fully priced for one rate cut this year and not before September. On Friday, an unexpectedly large pickup in U.S. wage growth last month contributed to these tempered rate expectations, along with the New York Fed’s household survey showing one-year inflation expectations holding steady at about 3%.
The International Monetary Fund has stated that it is too early to assess the impact of Trump’s tariff plans. With crude oil prices rising and another heavy week of Treasury auctions and inflation data ahead, 10-year yields have pushed back above 4.5%. This increase is partly related to Trump’s reference to possible fraudulent Treasury debt accounting, which was related to Musk’s examination of Treasury accounts.
In other market news, Chinese mainland and Hong Kong stocks have slipped back due to the mounting tariff war news, cooling a recent rally on China DeepSeek AI development. Additionally, Chinese car sales fell 12% in January from a year earlier, marking the first decline since September. Shares in Chinese automakers Xpeng and Geely tumbled up to 10%.
In Europe, stock indexes are firmer, with BP reporting a sub-forecast quarterly profit that was the lowest in four years. The oil giant promised to reset its strategy following news that investor Elliott Management had built up a stake in the firm. On Monday, BP’s shares jumped 7% on expectations that Elliott’s acquisition of the undisclosed stake would bring about change.
Key developments that should provide more direction to U.S. markets later on Tuesday include the US January NFIB small business survey, Federal Reserve Chair Jerome Powell’s semiannual monetary policy testimony, EU Commission President Ursula von der Leyen meeting U.S. Vice President JD Vance in Paris, and various US corporate earnings reports and Treasury auctions.
Overall, the markets are reacting to a mix of tariff news, corporate earnings, and AI advancements, with investors closely watching Powell’s testimony for further clues on the Fed’s monetary policy direction. Stay tuned for more updates on market trends and developments.
