President Donald Trump’s tariffs have already wreaked havoc on the global economy. The TPP midweek update.

President Donald Trump’s tariffs have already wreaked havoc on the global economy.

The stock market is trying to make sense of it all, and is struggling. Why? Because it makes little sense.

The Trump administration isn’t making this easy for any of us. The president doubled down on his trade policies in a speech to Congress Tuesday. Yet Commerce Secretary Howard Lutnick opened the door to some burgeoning optimism, suggesting tariffs on Mexico and Canada could be at least partially rolled back as early as Wednesday.

If there is relief, it could spark a significant rally for the stock market after a dismal couple of days, the S&P 500 has fallen 3% so far this week wiping out its 2025 gains.

The realisation that President Donald Trump's promised tariffs were no mere negotiation tactic sent the markets into a tailspin Tuesday morning, though Wall Street's dip-buying instincts seemed to kick in midway through the day. ?

The Dow Jones Industrial Average closed the day down 670 points, or 1.6%, which was actually a bit of a bounce back from the day's lows. The Dow was down more than 800 points at its low, while the Nasdaq Composite was down 2.1% intraday. It closed down 0.4%. The S&P 500 slid 1.2%.

The day kicked off with 25% US tariffs on goods from Mexico and Canada, and an additional 10% on China, taking effect.

The move prompted an immediate reaction from Canada, with Prime Minister Justin Trudeau announcing retaliatory 25% tariffs on $155 billion worth of American goods: $30 billion on products immediately, and another $125 billion on American products in 21 days.

Trump responded on social media saying: “when he puts on a Retaliatory Tariff on the US, our Reciprocal Tariff will immediately increase by a like amount!” The post suggests Trump is open to a tit-for-tat trade war. This is an escalation that could know no bounds and its stupidity quite remarkable.

Mexico plans to respond by the weekend, while China has previously enacted retaliatory tariffs on food and other farm products, as well as filing a lawsuit with the World Trade Organization.

Then, shortly after markets closed Tuesday, Commerce Secretary Howard Lutnick told Fox Business that Trump could be making adjustments to the Mexico and Canada tariffs as soon as tomorrow. "I think he's going to work something out with them," Lutnick said.

The news continued into the evening, with Trump addressing Congress with a speech that included the statement that ‘many’ believed his to be the most successful start to a presidency in US history. He noted a change in the national mood toward "pride" and "confidence". He compared himself to George Washington and boasted about the size of his electoral victory.

He also spoke at length about his ban on transgender athletes in women's sports and moves to get "woke ideology" out of US schools and the military.

"Wokeness is trouble. Wokeness is bad. It's gone, it's gone, and we feel so much better for it, don't we?"

European markets also dropped heavily on Tuesday with the DAX in Germany down over 3% at one point and the CAC in Paris not far behind. Confusingly, both have made up those losses Wednesday morning as the stock market yoyo continues. Markets on mainland Europe are seeing larger than normal swings as tariffs for the area are being lined up in the next round by Tump.

The ‘will he won’t he’ chatter is causing incredibly volatility, and one thing we’ve learned so far from other threats is that ‘he will’, it’s just a question of how much.

After yesterday’s collapse German stocks are the top performers regionally today, with top gainers including construction firm Hochtief, up 14%, manufacturer Kion Group, up 18.1%, the country’s biggest lender Deutsche Bank, up 10.8%, and Siemens Energy, up 8.8%. Regional defence names also continued their recent rally, with the Stoxx Aerospace and Defence index rising 2.7%.

ArcelorMittal is the lead gainer in Paris after the European Union announced an action plan to boost Europe’s steel sector and protect it from potential US tariffs. French banks also seem to be making a recovery today.

On the economic front, France's industrial production declined unexpectedly in January as output contracted across manufacturing, mining and construction sectors, data released by the statistical office INSEE showed.

Industrial production decreased 0.6% on a monthly basis in January, confounding expectations for an increase of 0.6%. This followed a 0.5% fall in December. Manufacturing output was down 0.7% month-on-month but this was slower than the 1% decline in December.

There is potentially good news for the UK in all this and that is there currently seems to be no bad news. The UK is not on Trump’s radar, and this may remain due to the relatively fair trading partnership already in place. Perhaps an even better deal is to come in the wake of the madness?

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "After a tortuous Tuesday for global markets, investors have clung onto sparks of positivity which have helped the FTSE 100 make some gains in early trade, although it's tentative progress.

"Hopes are rising that a Ukraine peace deal could be back on, China's latest services snapshot shows promise and there are even some glimmers of possibility that some reprieve from punishing tariffs could be in sight.

"Expectations have risen that US relations with Ukraine are warming up from the ice-cold intensity of Friday's Oval Office meeting between Trump, Vance and Zelensky.

"Trump brandished a letter from the Ukrainian president in his address to Congress, which he said indicated Kyiv was ready to come to the negotiating table. The renewed willingness from Zelensky to sign a minerals deal has led to hopes that a way can be found out of a diplomatic quagmire, which has eased some geopolitics fears."

Currencies

The dollar isn't doing so hot in the wake of President Trump's initiated tariffs on Mexico, Canada, and China. But that's just the opposite of what was “supposed” to happen.

Tariffs are traditionally considered dollar-positive—in that the currency trade tends to do well in the wake of levies. And that is just what the greenback did before Trump implemented the levies at midnight, writes Barron's editor Ben Levisohn.

The ICE U.S. Dollar index rose 10% from a low of 100.18 on Sept. 30 through its peak of 110.18 on Jan. 13. But now it has dropped 3.6% to 104.98 since then, including a 0.5% decline on Tuesday and 0.78% by lunchtime Wednesday.

The dollar’s drop has coincided with a sharp decline in U.S. equity markets—the S&P 500 ?and Dow Jones Industrial Average have fallen 1.9%—and a decline in the 10-year Treasury yield to 4.14%.

Previously, economists believed the dollar would rise with other currencies falling to offset the tariffs and keep everything in equilibrium.

But there’s more to the dollar than simply tariffs, Ben writes. With economic growth likely on a slower trajectory due to DOGE's cuts within the federal workforce, falling Treasury yields, as well as retaliatory actions from trading partners, the dollar now looks ready to weaken "considerably," Ben says.

“The theoretical narrative is good, but now investors are being forced to ask whether things might not work out as neatly as the theory predicts,” writes Gavekal’s Tan Xian.

And things could get worse before they get better. George Saravelos, global head of FX research at Deutsche Bank, contends the dollar could lose its coveted safe haven status. As Ben explains, the dollar typically rises when things go wrong in markets. But that's not happening this week—and it may not occur going forward amid so much uncertainty.

“We do not write this lightly. But the speed and scale of global shifts is so rapid that this needs to be acknowledged as a possibility,” Saravelos writes. “Our dollar views remain neutral for now but the key message is that we are becoming a lot more open-minded about two-sided risks to the dollar.”

The pound has risen from a little over 1.26 against the dollar at the start of the week to trade 1.283 at the time of writing. This is a move of just over 1.8% in 3 days. The drop against the Euro is even more stark with a fall of 2.78% over the same period.

Commodities

Opec+ said it would proceed with a plan to increase oil production from April, in an unexpected move by the cartel that sent crude prices tumbling.

Saudi Arabia and seven other members of the Opec+ group had previously delayed a plan to unwind long-standing output cuts several times and traders had widely expected it to be postponed again. But Opec+ said on Monday it had agreed to proceed with the “gradual and flexible return” of 2.2mn barrels a day of oil production over the next 18 months.

The price of Brent crude dropped 1 per cent on Tuesday to a five-month low of $70.60 a barrel, extending Monday’s 2 per cent slide, as traders responded to the prospect of increased supply. Concerns about the potential impact of US tariffs on economic activity were already weighing on crude prices, which are down more than 10 per cent from a high this year of $82 a barrel in January.

“Two things are hitting the market at the same time, Trump’s tariffs and the Opec+ restart of halted production,” said Kevin Book, co-founder of ClearView Energy Partners, a research firm.

“It is no surprise that this creates a sell signal to traders.” Trump called on Opec+ to push down oil prices during a speech in January to executives at Davos. Opec+ had initially intended to begin unwinding the group’s output cuts in September but delayed the plan three times.

The eight countries that will increase production from April are Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman. All other existing production cuts would remain in place, Opec+ said. “This gradual increase may be paused or reversed subject to market conditions,” it added. “This flexibility will allow the group to continue to support oil market stability.”

Three different sets of output cuts mean Opec+ members are producing almost 6mn b/d less than their combined capacity, representing about 6 per cent of global oil supply. Saudi Arabia has shouldered the majority of the cuts to date, reducing its own production by 2mn b/d in the past two years.

Finally gold’s correction last week has proved to be short-lived as a sharp drop in U.S. equities drives renewed safe-haven demand for the precious metal. Gold price is extending its winning streak for the third successive day on Wednesday. The precious metal receives upward support from safe-haven demand amid the implementation of US tariffs. However, the price of gold faces challenges as rising US Treasury yields pressured non-yielding assets.

Along with geopolitical uncertainty supporting gold’s safe-haven allure, the precious metal is benefiting from growing weakness in the US dollar.

That’s all from us. There will no doubt be many more ups and downs over the rest of the week and we’ll be back to share the trading repercussions at the weekend in our Week in Review.

TPP portfolios will continue to trade the moves with caution. So far our trading strategies are doing well this year, and we see no reason why this won’t continue. There will certainly be opportunities as volatility continues.

Disclaimer: The views expressed in this article are the author’s own and should not be considered in rendering any legal, business or financial advice.

Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to the corresponding past performance.