Investing.com — Wall Street is seen slipping slightly lower Tuesday after Donald Trump brought up the potential for more stringent trade tariffs in January as he enters the White House. Investors will also be studying the minutes from the last Fed meeting, while Rumble has announced plans to purchase a large chunk of Bitcoin.
1. Trump threatens to impose tariffs straight away
Donald Trump raised the specter of a global trade war when he took to his platform Truth Social late on Monday to threaten 25% tariffs on Mexico and Canada when he returns to the White House if they don’t better control their borders.
President-elect Trump also threatened to slap an additional 10% tariff on all Chinese imports when he takes office on Jan. 20, adding that he would impose the tariffs until Beijing stops the flow of illegal drugs, particularly fentanyl, into the United States.
The Chinese Embassy in Washington responded by saying neither country would win a trade war.
“About the issue of US tariffs on China, China believes that China-US economic and trade cooperation is mutually beneficial in nature,” Chinese Embassy Spokesperson Liu Pengyu said in a statement.
“No one will win a trade war or a tariff war,” Liu said.
Asia is better positioned to weather these challenges compared to the trade war of 2018-2019, according to UBS analysts, thanks to improved supply chain integration, a more resilient regional growth outlook, and opportunities in emerging sectors like artificial intelligence and greentech.
UBS also expects that China will respond to tariffs with targeted retaliatory measures and increased non-US trade partnerships, mitigating the overall economic fallout.
2. Futures lower as risk sentiment slips
US stock futures edged lower Tuesday, handing back some of the previous session’s gains with risk sentiment hit by President-elect Donald Trump’s commitment to significant trade tariffs.
By 03:50 ET (08:50 GMT), the Dow futures contract was down 30 points, or 0.1%, S&P 500 futures dropped 5 points, or 0.1%, and Nasdaq 100 futures fell by 5 points, or 0.1%.
The main benchmarks closed higher on Monday, as investors reacted positively to Trump’s nomination of hedge fund executive Scott Bessent as Treasury Secretary.
The Dow Jones Industrial Average gained over 400 points, or 1%, to a new record close. The broad-based S&P 500 rose 0.3%, hitting an intraday record high, while the tech-heavy Nasdaq Composite also climbed 0.3%.
The Federal Reserve releases the minutes of its last policy-setting meeting later in the session [see below], while corporate earnings are scheduled from the likes of Best Buy (NYSE:BBY), Urban Outfitters (NASDAQ:URBN), Kohl’s (NYSE:KSS) and HP (NYSE:HPQ).
3. S&P 500 runs risk of pullback – Citi
The broad-based S&P 500 index surged to another all-time interim record high during Monday’s session, boosted by Wall Street’s reaction to Trump’s new Treasury secretary nomination, hedge fund executive Scott Bessen.
This improved risk appetite has resulted in positioning in the S&P 500 surging back to record highs in recent weeks, Citi analysts said in a recent note, but the stretched bullish positions made stocks vulnerable to a turn in sentiment.
Citi said positioning for the S&P 500 was solely one-sided, with long notional positions at well over $100 billion, and warned that an excess of long positions made the risk of a pullback more acute.
“Risks are more acute for the S&P due to the large asymmetric positioning setup, Nasdaq and Russell short positioning levels remain near long-term averages,” Citi analysts wrote in a note.
Wall Street surged to record highs through November after Trump’s election victory, with positive economic data from last week adding to the gains.
Citi noted that while the economic data presented a positive picture of the economy, the brokerage said investors were still in a “waiting mode” to see what policies the Trump administration will bring.
4. Fed minutes in spotlight
Away from all things Trump, investors are looking for guidance about the likely path of the Federal Reserve’s monetary policy as the year comes to an end and then into 2025.
The US central bank releases the minutes later in the session of its early November meeting when it cut rates by a quarter point, following the first, super-sized half-point cut of the current easing campaign in September.
The Fed began cutting interest rates after gaining confidence that inflation would continue to fall, but inflation’s progress toward its 2% goal appears to have slowed, creating doubt over when the next reduction will occur.
Federal Reserve Bank of Minneapolis President Neel Kashkari, usually seen as something of a policy hawk, said on Monday he is open to cutting interest rates again next month.
“It’s still a reasonable consideration,” Kashkari said in a Bloomberg TV interview. “Right now, knowing what I know today, still considering a 25-basis-point cut in December – it’s a reasonable debate for us to have.”
5. Bitcoin gains corporate demand
Bitcoin fell on Tuesday, retreating further from all-time highs as risk appetite was rattled by President-elect Donald Trump threatening more trade tariffs on China and other countries.
At 03:50 ET (08:50 GMT), Bitcoin fell 5.4% to $92,813, retreating from last week’s record high of over $99,000 as the world’s largest cryptocurrency was hit with a wave of selling pressure.
That said, Bitcoin’s rally was driven chiefly by optimism over improved regulations under Trump, and companies are starting to preempt such moves, suggesting more demand ahead.
Rumble (NASDAQ:RUM), an online video platform that hosts Truth Social, said late Monday that it will begin making purchases of up to $20 million in the cryptocurrency, using a portion of its excess cash reserves.
“We believe that the world is still in the early stages of the adoption of bitcoin,” Rumble chairman and CEO Chris Pavlovski said in a statement Monday. “Unlike any government-issued currency, bitcoin is not subject to dilution through endless money-printing, enabling it to be a valuable inflation hedge and an excellent addition to our treasury.”
This follows software company MicroStrategy (NASDAQ:MSTR) announcing earlier on Monday that it has significantly expanded its Bitcoin holdings, purchasing approximately 55,500 bitcoins for $5.4 billion in cash earlier this month.
