A look at the day ahead in U.S. and global markets from Mike

Dolan

Likely a taste of things to come, stock and currency markets

were knocked back and forth on the first day of Donald Trump's

new presidency as they second guessed his trade tariff plans and

remained largely in the dark on the issue as U.S. markets return

from Monday's holiday.

Trump's inauguration was accompanied by dozens of executive

orders and directives - ranging from emergency immigration curbs

on the Mexican border to more oil drilling, a demand that

government agencies control inflation, U.S. withdrawal from

climate accords and pardons for 2021's Capitol Hill rioters.

But there were no specific Day One measures on long-promised

trade tariffs - something flagged early on Monday by a Wall

Street Journal report that weakened the U.S. dollar sharply and

lifted overseas stock markets seen to be in the firing line.

Just as that relief set in through the day, however,

prompting one of the biggest drops in the dollar index of

the year and rallies in European and Chinese stocks, Trump later

responded to questions by saying he was thinking of 25% tariffs

on Mexico and Canada from Feb. 1, blaming a lack of action by

both countries on flows of illegal migrants and fentanyl.

However, he also suggested his plans for a universal tariff

on all U.S. goods imports were not yet in the works. "We may.

But we're not ready for that yet," Trump said.

The upshot was that Monday's rallies in Mexico's peso

and the Canadian dollar were almost entirely reversed and

half of the euro's jump was wiped. China's offshore yuan

, which had staged its biggest one-day rise since August

on Monday, gave back almost half of that move too.

European stocks, which had advanced on Monday, were

flat earlier today and mainland Chinese stocks also

stalled after giving up early gains of almost 1%. Hong Kong's

Hang Seng, however, closed 0.9% up on the day.

In a presidential memo, Trump directed Commerce and Treasury

departments and the U.S. Trade Representative to probe the

economic and national security risks of large trade deficits and

"recommend appropriate measures, such as a global supplemental

tariff, or other policies, to remedy such deficits".

The memo called for the USTR to assess China's performance

under the "Phase 1" trade deal he signed with Beijing in 2020 to

end a nearly two-year tariff war.

For Wall Street stocks returning after the Martin Luther

King holiday on Monday and in the thick of the fourth-quarter

earnings season too, the overall picture appears to remain

positive and index futures were up to 0.5% up before

Tuesday's bell. Netflix ( NFLX ) tops the corporate diary later.

Encouraged by the equivocation on tariffs and the rather

vague prioritisation of anti-inflation measures, 10-year U.S.

Treasury yields extended last week's retreat to hit

their lowest since Jan. 2. But with 2-year yields backing up a

touch to 4.25%, the 2-to-10-year yield curve gap

narrowed to its flattest for the year.

Dampened by Trump's repeated push on more oil drilling and

U.S. self-sufficiency in oil and gas, the retreat of U.S. crude

oil prices to their lowest in 10 days helped improve the

mood in bonds too - reinforcing the more benign view of

underlying inflation that saw Treasuries bounce last week.

However, not much in Trump's first day seemed to alter

market thinking on the Federal Reserve. Another quarter-point

cut remains priced by midyear and futures see a 60% chance of a

second move of that magnitude later in the year.

In specific sectors, the new President's withdrawal from

climate talks and his planned rollback of numerous alternative

energy initiatives from the previous administration saw global

green stocks take a hit.

Wind power stocks in Europe, including Vestas Wind Systems ( VWSYF )

and Nordex SE fell 4.7% and 3.6%,

respectively, as Trump suspended new federal offshore wind

leasing pending an environmental and economic review.

Orsted also tumbled 15.3% on the news as the

offshore wind developer posted an impairment charge of $1.69

billion related to its U.S. offshore portfolio.

And for previously ebullient crypto markets, the absence of

any specific reference to the digital token industry on the

inauguration day was seen as a disappointment.

Bitcoin and other crypto tokens, and even the newly

minted token bearing Trump's name, recoiled on Tuesday from new

records set earlier in the week.

Elsewhere, the British employment report held something of a

mixed picture for the pound and UK markets.

UK pay growth stayed stubbornly strong in the three months

to November but there were more signs of a softening jobs

market.

Growth in private-sector pay excluding bonuses - a measure

watched closely by the Bank of England as a gauge of domestic

inflation pressure - rose to 6.0% in the three months to

November from 5.5% in the three months to October.

But the number of employees registered by businesses fell

47,000 in November - the biggest monthly drop in four years.

Key developments that should provide more direction to U.S.

markets later on Tuesday:

* Canada December consumer price inflation

* US corporate earnings: Netflix ( NFLX ), Capital One, Seagate

Technology, United Airlines, 3M, DR Horton ( DHI ), KeyCorp ( KEY ), Charles

Schwab ( SCHW ), Fifth Third, Prologis ( PLD )

* World Economic Forum in Davos, including German Chancellor

Olaf Scholz, South Africa's President Cyril Ramaphosa,

Argentina's President Javier Milei etc

* ECOFIN meeting of European Union finance ministers in

Brussels, with European Central Bank Vice President Luis de

Guindos in attendance

(By Mike Dolan, editing by Ed Osmond

[email protected])