S&P500 Forecast: SPX slumps as Trump trade tariffs fuel trade-war fears

US futures

Dow future -1.4% at 45004

S&P futures -1.6% at 5937

Nasdaq futures -1.87% at 21065

In Europe

FTSE -1.43% at 8557

Dax -1.58% at 21378

Trump announced trade tariffs on Canada, Mexico & China
Risk appetite sours, and USD rises on safe-haven flows
Automakers and chip stocks are among the heavy fallers
Oil jumps on supply worries post tariff announcement

Trump announces trade tariffs

US stocks are set to open lower after President Trump unveiled tariffs against key trading partners over the weekend, fueling fears of a full-on trade war.

Tariffs will take effect on Tuesday, and they include 25% duties on Canada and Mexico and 10% on China. Trump warned that these actions may cause short-term pain for Americans.

The announcement has fueled risk-off trade across the financial markets, with U.S. stocks heading for a sharply lower open after the Dow Jones and the S&P 500 reached record highs last week.

There are rising concerns that trade tariffs will bring inflationary pressures, as companies pass higher costs to customers. This could limit the Federal Reserve's ability to cut interest rates. Last week, the Fed left rates on hold at 4.25% to 4.5% and said it was in no rush to move rates until the data showed it necessary to do so.

Attention will now turn to the ISM manufacturing PMI, which is expected to show that the sector remained in contraction in January at 49.8, up from 49.3 in December. The prices paid by the sub-component are also expected to rise from 52.6 to 52.5.

The data comes ahead of services PMI later in the week and US non-farm payroll figures on Friday, which could provide further insight into the health of the US economy and the future path for rate cuts.

Corporate earnings will continue to roll this week, with big names in tech, such as Alphabet and Amazon, due to release figures this week. However, trade war worries threaten to overshadow announcements.

Corporate news

General Motors is set to open 7% lower, and Ford has fallen 4% pre-market as investors weigh up the implications of Trump's new tariffs on American companies. GM manufactures its cars in Mexico more than any other automobile maker.

Tesla falls 3% pre-open, with the EV maker unlikely to avoid the impact of tariffs.

Chip stocks such as NVIDIA, AMD Broadcom, and Qualcomm are all sharply lower as escalating trade tensions fuel uncertainty.

Planantir is set to open dissent lower as the software firm releases Q4 earnings after the close.

Crypto stocks such as Coinbase and MicroStrategy are sharply lower as Bitcoin prices tumble in risk-off trade.

S&P 500 forecast – technical analysis.

The S&P 500 ran into resistance at 6120 last week before falling sharply lower. The aggressive break below the 50 SMA and the RSI below 50 keeps sellers hopeful of further losses. However, support at 5915, at last Monday’s low, held again. Sellers will need to break below here and the 100 SMA at 5870. A break below here brings 5850 support zone into play. Any recovery would need to retake the 50 SMA at 6000 to build gains towards 6100.

FX markets – USD rises, EUR/USD falls

USD is rising on expectations that Trump’s trade tariffs will be inflationary and could limit the Federal Reserve’s ability to cut rates. The USD is also benefiting from safe-haven flows.

EUR/USD is falling to 102 after Trump warned that trade tariffs would be applied to the European Union. ECB policymakers have warned that trade tariffs will increase economic uncertainty in the region, where growth has already stalled. Meanwhile, eurozone inflation rose to 2.5% in January, and core inflation held at 2.7%.

USD/CAD has spikes higher as the loonie loses value amid concerns over the impact of trade tariffs on the already weak economy. The BoC could be forced to cut interest rates at a faster pace to support the economy, where inflation has already eased considerably.

Oil jump on supply fears

Oil prices have jumped at the start of the week after Trump announced trade tariffs on Mexico Canada and China fueling supply disruption concerns.

Canada and Mexico are key oil suppliers for the US and have vowed to retaliate, raising fears of tit for tat trade war which could impact supply could be impacted. These worries are overshadowing fears that a trade war could slow global growth and weaken the oil demand outlook.

OPEC meeting today, however, it is an advisory meeting rather than a main policy decision meeting. The group is expected to discuss a planned increase supply later in the year.

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