The FTSE 100 tracked global equities to the downside after Donald Trump imposed tariffs on Canada, Mexico and China, threatening a far-reaching global trade war.
London’s leading index was down 1.2% at the time of writing as traders assessed the implications for individual companies and sectors.
“Investors are rattled at the prospects of a full-blown trade war breaking out after the US slapped punishing tariffs on Canada, Mexico and China, prompting retaliation,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“Investors are buckling up for a rollercoaster ride for the global economy, with the European Union expected to be next in line for punitive duties.”
The sharp reaction in stocks on Monday reflects an element of complacency in markets after Trump’s inauguration. Donald Trump had held off some of the most dramatic measures in the early days of his presidency, which cultivated a sense of relief that the worst of his campaign rhetoric would not be acted on.
Anyone positioning for this school of thought was humbled on Monday as US futures sank and Europe followed. That said, while the delines were pronounced, they were relatively contained, suggesting markets were pricing for some of the most damaging tariffs to be short-lived.
“Financial markets had assumed that Trump would talk tough on tariffs and back off when he got a deal, so the US president’s plan to act first and then (perhaps) talk has come as a nasty surprise to share prices around the world, especially as Canada and Mexico have already threatened retaliation,” says AJ Bell investment director Russ Mould.
“Trump’s launch of tariffs in 2018 did raise revenues for America but US corporate profits took a hit that year and America’s S&P 500 index fell by a fifth, so markets have understandably taken fright this time around.”
European and US car manufacturers were among the most heavily hit on Monday. The interconnectedness of the auto industry in North America means components move backwards and forwards across the border on many occasions.
Unsurprisingly, there were few gainers in London, with 90% of the FTSE 100 trading in negative territory.
The Scottish Mortgage Investment Trust was the top faller as traders reacted to a drop in the NASDAQ and the technology shares held in the trust’s portfolio. Copper miner Antofagasta was sharply lower as copper prices fell amid additional tariffs on China.
Elsewhere, there were broad declines in retailers, financials, miners, property stocks and engineering firms.
It appears the market is taking a ‘sell first, ask questions later’ to tariffs, with the impact on UK stocks not immediately obvious and uncertainty about whether Trump will strike closer to home in the coming weeks.