On Wall Street, stock prices rose slightly on Tuesday, but after the market closed, the futures S&P 500 index fell more than 1 percent as Gary Cohn, the chief economic advisor to U.S. President Donald Trump and a proponent of free trade, resigned.
The Dow Jones gained 9 points or 0.04 percent to 24,884 points, while the S&P 500 rose 0.26 percent to 2,728 points, and the Nasdaq index increased by 0.56 percent to 7,372 points.
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The rise of these indices during regular trading was supported by investors’ hope that Trump would not impose tariffs on steel and aluminum imports, but that his announcements were merely a tactic in trade negotiations.
Fear of inflation and the outbreak of a trade war
However, trading was uncertain as, despite calls from leading Republicans in the U.S. Congress to reject the proposal, Trump indicated that he would stick to the plan to impose tariffs and that “trade wars are not so bad.”
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– The market does not like uncertainty; it wants to hear whether it will be this way or that way. If our greatest fears are confirmed, the market could fall even more than last week. Likewise, the market could rise if it turns out that there will be no trade wars, said Chris Zaccarelli, director at Independent Advisor Alliance.
At the beginning of this week, the market recovered some of those losses as investors believed it was just a threat from Trump.
Last Thursday, leading indices on Wall Street sharply fell after Trump announced tariffs on steel imports of 25 percent and aluminum of 10 percent, as this raised fears of rising inflation in the U.S., increased business costs for companies in certain sectors, and the outbreak of trade wars.
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However, at the beginning of this week, the market recovered some of those losses as investors believed it was just a threat from Trump due to the high U.S. trade deficit and that negotiations would follow the announcement of tariffs on how to resolve the situation.
However, after the market closed, the futures S&P 500 index plummeted more than 1 percent, indicating a drop in stock prices at the start of trading on Wall Street on Wednesday.
Resignation of a protectionism opponent
This is a consequence of the news that Gary Cohn, director of the National Economic Council, who is considered the biggest opponent of protectionist forces in Trump’s administration, unexpectedly resigned.
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– If you are looking for an excuse to sell stocks, such news certainly represents short-term pressure on the market. Cohn came from Wall Street, so large institutional investors surely believed he had the credibility for that position, said Rick Meckler, president of LibertyView Capital Management.
Cohn could be replaced by Peter Navarro, director of the National Trade Council at the White House, which analysts believe would open the way for protectionist forces.
– The market fears that this is a definitive signal that tariffs will be imposed. The possibility of trade wars has now increased. Economic nationalists have prevailed, says Monica de Bolle from the Peterson Institute for International Economics.
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Cohn did not publicly explain his resignation, but the White House confirms that the conflict over tariffs contributed to his resignation, but also states that this is not the only reason. In addition to the drop in the futures S&P 500 index, the dollar exchange rate immediately came under pressure as there is great uncertainty in the markets.
Yesterday, after a conversation with Swedish Prime Minister Stefan Löfven at the White House, Trump accused the European Union of making it “almost impossible” for American businesses to operate with it.
– The European Union has been particularly tough on the U.S. This makes it almost impossible for us to do business with them, yet they continue to send their cars to the U.S. If we impose tariffs of 25 percent, believe me, they won’t be doing that for long, Trump said.
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And after Trump recently announced tariffs on steel and aluminum imports, at the beginning of this week, the European Commission announced that it would consider countermeasures to Trump’s decision on Wednesday, stating that Europe’s response would be “swift, firm, and proportionate” and in accordance with World Trade Organization (WTO) rules.
On European exchanges, stock prices rose yesterday. The London FTSE index strengthened by 0.43 percent to 7,146 points, while the Frankfurt DAX rose by 0.19 percent to 12,113 points, and the Paris CAC increased by 0.06 percent to 5,170 points.
Decline in prices on Asian markets
On Asian markets, stock prices fell on Wednesday, while the dollar weakened as investors feared that U.S. President Donald Trump would persist in imposing tariffs, risking trade wars, after his chief economic advisor Gary Cohn resigned.
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The MSCI Asia-Pacific index, excluding Japan, was down 0.3 percent around 7:30 AM, after jumping more than 1 percent yesterday. On the Tokyo Stock Exchange, the Nikkei index slid 0.7 percent this morning, while stock prices in Shanghai, Singapore, South Korea, Australia, and Hong Kong fell between 0.2 and 1 percent.
The uncertainty in global markets spilled over into currency markets.
Yesterday, stock prices on Asian markets significantly rose as investors hoped that Trump’s announcements of tariffs on steel and aluminum imports to the U.S. were just threats to achieve certain concessions in trade negotiations.
The uncertainty in global markets spilled over into currency markets, focusing investors on the Japanese yen and Swiss franc, which are considered safer havens for capital in uncertain times.
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Thus, the dollar price fell 0.4 percent against both the franc and the yen, with the dollar sinking to 105.45 yen, near the lowest level in 16 months.
The American currency also weakened against the European currency, with the euro exchange rate reaching 1.2420 dollars, while it was 1.2350 dollars at the same time yesterday.
The dollar, however, strengthened by 0.4 percent against its Canadian counterpart and the Mexican peso as investors feared that Washington would withdraw from the North American Free Trade Agreement (NAFTA).
Market disruptions also caused a drop in oil prices. Thus, this morning, the price of a barrel slid 0.8 percent to 65.30 dollars, losing all yesterday’s gains.
