Donald Trump is putting his money where his mouth is and imposing tariffs on Mexico, Canada and China on their products imported into the US. The double-edged sword of tariffs also affects European companies such as Volkswagen with its production in Mexico. Rarely are there actions that do not trigger counter-reactions, i.e. there are immediate reactions from the affected countries that also impose tariffs on US exports to the respective countries. Overall, there will be significant price increases, which in turn is likely to fuel inflation with the consequence that central banks may have to resort to the instrument of interest rate hikes again. The result: a further strengthening of the US dollar and possibly sensitive setbacks in the stock markets.
Price rally on the European stock markets ended for the time being
The reactions to the European stock market are not long in coming. The EuroStoxx as well as the DAX are down significantly in today's pre-market. The EuroStoxx is estimated to be 2.7% lower and the DAX is only marginally lower with a price gap of 2.4 percent. It is likely to hit companies such as Volkswagen in particular, whose sales in the North America region are directly affected by the tariffs. The record hunt should therefore be over for the time being and we have to wait and see how things develop. The generally bullish stock market is likely to remain positive overall, as the tariffs are not really a surprise. Investors may only see a temporary strong reaction, which then ends with a good opportunity to buy more.
Euro collapses and goes towards parity
The euro, however, came badly under the wheels. While there was still the possibility of trading towards 1.05 US dollars last week, the ECB's interest rate cuts and the imposed US tariffs have completely pulled the plug on this possibility. The euro collapses completely and acts in the direction of parity. It is possible that the price of 1.02 US dollars will be undercut shortly.
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