The Trump administration is considering a more gradual approach to tariffs to prevent inflation from spiking

At Tuesday’s close, the Dow Jones Index (US30) was up 0.52%. The S&P 500 Index (US500) added 0.11%. The Nasdaq Technology Index (US100) was down 0.13%. Yesterday, the overall market received support from a Bloomberg report that President-elect Trump’s economic team is considering a gradual increase in trade tariffs as part of a strategy to stave off a spike in inflation. Stocks also gained support after US producer prices rose less than expected, easing inflation concerns and boosting expectations for a favorable US Consumer Price Index report on Wednesday. Major US financial institutions including BlackRock, JPMorgan Chase, Citigroup, Goldman Sachs, and Wells Fargo are due to release their fourth-quarter results today.

Rising crude oil prices and Canada’s position as the largest oil exporter to the US, benefiting from new US sanctions on Russian oil, supported the outlook for loonie demand. In addition, reports of the gradual implementation of proposed US tariffs have reduced Canadian exporters’ fears, further boosting loonie demand. In addition, stronger-than-expected Canadian labor market data for December lowered expectations of an imminent interest rate cut by the Bank of Canada (BoC).

Equity markets in Europe were mostly up on Tuesday. Germany’s DAX (DE40) rose by 0.69%, France’s CAC 40 (FR40) closed 0.20% higher, Spain’s IBEX 35 (ES35) gained 0.55%, and the UK’s FTSE 100 (UK100) closed negative 0.28%. The recovery in European indices came amid reports that the Trump administration is considering a more gradual approach to tariffs, potentially increasing them gradually. At the same time, bond yields declined, halting their recent rally. Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at its next meeting on January 30.

WTI crude oil prices fell to around $78.3 a barrel on Tuesday amid profit taking after three days of gains. Crude prices hit a five-month high on Monday as tougher US sanctions on Russia’s energy industry jeopardized global supplies. The restrictions have affected major producers and hundreds of ships and tankers, forcing key buyers such as India and China to seek alternative sources. The first signs of disruption are already evident, with a senior Indian official saying ships hit by the sanctions will be banned from unloading, while China has secured oil supplies from the UAE and Oman.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) fell by 1.83%, China’s FTSE China A50 (CHA50) gained 2.08%, Hong Kong’s Hang Seng (HK50) rose by 1.83%, and Australia’s ASX 200 (AU200) was positive 0.48%. Mainland stocks rose sharply on Tuesday after Chinese authorities stepped up policy support to stem the market’s slide. The China Securities Regulatory Commission pledged to prioritize market stability in 2025, while the People’s Bank of China (PBoC) promised to prevent risks from currency fluctuations.

The Australian dollar dipped below $0.62 on Wednesday as caution prevails in the market ahead of crucial US inflation data that could limit the potential for the Federal Reserve to cut interest rates this year. Domestically, traders’ attention is focused on Thursday’s release of Australian employment data looking for clues on the potential trajectory of rate cuts by the Reserve Bank of Australia (RBA). In addition, Australia’s fourth quarter inflation data due for release later this month will be under scrutiny as one of the last major indicators before the RBA’s monetary policy decision next month. Markets are currently pricing in a 70 percent chance that the RBA will cut its 4.35 percent monetary rate by 25 basis points in February.