U.S. stock index futures fell sharply on Monday as investors weighed the potential impact on the U.S. economy and corporate profits after President Donald Trump imposed trade tariffs on the country’s major trading partners.
Dow Jones futures fell 620 points, 1.4%, S&P 500 futures fell 97 points, 1.6%, and Nasdaq 100 futures fell 395 points, 1.8%.
Trump signs executive order to impose tariffs
On Saturday, Trump signed an executive order imposing tariffs of 25% on Canada and Mexico along with an extra tariff of 10% on China, asking the countries to stop the flow of illegal drugs and immigrants to the United States.
The new trade tariffs, which will come into effect on February 4, cover all imports from the three countries, however, imports of both gas and oil to Canada will have a lower tariff.
All three countries rejected the tariffs and announced retaliation.
Trump had largely kept the tariffs under wraps for the last two weeks, the sharp fall in futures came as investors expected some kind of compromise.
Analysts believe the tariffs will increase US inflation, as they will be paid for largely by domestic importers. Higher inflation lowers the likelihood of further interest rate cuts by the Federal Reserve.
“The resulting increase in US inflation from these tariffs and other future measures will be even faster and greater than we initially expected… the window for the Federal Reserve to resume interest rate cuts at any time over the next 12 to 18 months has slammed shut,” Capital Economics analysts said in a note.
Earnings season reaches its busiest moment
Far from the turmoil surrounding tariffs, this week will be the most important to date for fourth-quarter results, which have increasingly become more important for understanding the state of the market.
Around 120 companies that are part of the S&P 500 are ready to publish their results, including Alphabet (GOOG), owner of Google, and the e-commerce giant Amazon (AMZN), which will report their quarterly figures on Tuesday and Thursday, in that order.
A large number of other important companies, such as Alibaba (BABA), AMD (AMD), Walt Disney (DIS), Qualcomm (QCOM) and Uber (UBER), will also present their reports throughout the week. The January non-farm payroll report will also be released on Friday. Economists estimate that 154,000 jobs were created last month, down from 256,000 the previous month. The unemployment rate is expected to remain unchanged at 4.1%.
Crude oil soared due to supply disruption
Oil prices rose on Monday as President Trump’s announcement of tariffs on imports from two of the US’s main suppliers raised concerns about possible disruptions to oil supply chains.
The United States imports around 4 million barrels of Canadian oil and almost 500,000 barrels of Mexican oil every day.
It is believed that the new tariffs will increase the costs for US refineries, especially those in the Midwest and Gulf Coast regions, which could lead to an increase in fuel prices and production cuts.
