The imposition of tariffs by the US on imports from Canada, Mexico, and China has sent ripples through global markets, with investors flocking to the dollar as a safe haven amidst escalating trade tensions. The tariffs are expected to stoke inflationary pressures, supporting higher US interest rates and further bolstering the dollar's appeal. Equity markets across the US, Europe, and Asia-Pacific have tumbled, reflecting concerns over reduced global trade and potential economic slowdowns. The introduction of these tariffs has also heightened inflation concerns, leading to increased yields on shorter-term securities like two-year US Treasuries.
In the commodities market, the price of US benchmark West Texas Intermediate (WTI) crude has surged. The tariffs threaten to disrupt North America's tightly integrated oil market, particularly affecting imports from Canada and Mexico, which could push up gasoline prices for American motorists. This potential disruption has narrowed the discount of WTI to Brent crude. "Financial markets may undergo a painful adjustment process in the coming weeks as participants begin to take the president seriously and literally," said Karl Schamotta, chief market strategist at Corpay in Toronto.
As of 00:10 on February 3, the price of WTI crude stands at $76.37, up from its last close of $75.67. The market's reaction underscores the broader economic implications of the US's protectionist measures, with significant volatility expected as investors adjust to the new trade policy landscape.