European markets closed lower on Tuesday while Wall Street bounced as investors digested incoming US president Donald Trump’s warning that he would impose huge new tariffs on China, Mexico and Canada, raising fears of a trade war.
Trump said on his Truth Social account that he would hammer the United States’ largest trading partners with tariffs in a bid to force them to curb the illegal drug trade and immigration.
“While his warnings appear to be negotiation tactics ahead of his January 20 inauguration, markets remain highly reactive to headlines, creating volatile trading conditions,” said Fawad Razaqzada, market analyst at City Index, in a note.
Europe’s top indices fell while Wall Street’s were mixed, following gains a day earlier on Trump’s nomination for Treasury secretary, hedge fund manager Scott Bessent — seen as a safe pair of hands.
Trump’s tariffs announcement fanned fears of a trade war with China and warnings that the duties — along with promised tax cuts — would reignite US inflation.
“These are his first direct comments on tariffs and tariff levels since becoming president-elect, and they have roiled markets,” said Kathleen Brooks, research director at XTB trading group, ahead of the Wall Street open.
European stocks followed losses in Asia on Tuesday despite Trump excluding Europe as an immediate target for tariffs.
“It is early days, and there are plenty of opportunities for Trump to direct his attention to Europe down the line,” Brooks added.
Trump vowed to charge Mexico and Canada 25-percent tariffs on all products coming into the United States and would slap China with a 10-percent levy on top of existing tariffs.
Capital Economics analysts noted that “Trump is likely to move much more quickly with tariffs than during his first term”.
The US dollar rallied against its Canadian equivalent, China’s yuan and Mexico’s peso, which neared its lowest level since 2022, and also strengthened against the euro and pound following earlier declines.
Elsewhere on Tuesday, bitcoin held above $94,000 despite falling further.
A Trump-fuelled rally that had seen the world’s largest cryptocurrency surge about 50 percent to within a whisker of $100,000 has run out of steam.
Oil prices rebounded slightly after Monday’s losses of around three percent, as Israel’s security cabinet convened to discuss a proposed ceasefire in its war with Hezbollah in Lebanon.
– Key figures around 1640 GMT –
London – FTSE 100: DOWN 0.40 percent at 8,258.61 points
Paris – CAC 40: DOWN 0.87 percent at 7,194.51
Frankfurt – DAX: DOWN 0.56 percent at 19,295.98
Tokyo – Nikkei 225: DOWN 0.9 percent at 38,442.00 (close)
Hong Kong – Hang Seng Index: FLAT at 19,159.20 (close)
Shanghai – Composite: DOWN 0.1 percent at 3,259.76 (close)
New York – Dow: DOWN 0.34 percent at 44,583.88
New York – S&P 500: UP 0.36 percent at 6,009.16
New York – Nasdaq: UP 0.52 percent at 19,154.00
Euro/dollar: DOWN at $1.0485 from $1.0495 on Monday
Pound/dollar: DOWN at $1.2553 from $1.2564
Dollar/yen: DOWN at 153.497 yen from 154.23 yen
Euro/pound: UP at 83.53 pence from 83.51 pence
Brent North Sea Crude: UP 0.63 percent at $72.94 per barrel
West Texas Intermediate: UP 0.74 percent at $69.45 per barrel
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