Tariff implementation spark risk-off decline

• European markets slump as Trump withdraws support for Ukraine.

• Tariff implementation spark risk-off decline.

• OPEC+ abandon efforts to support oil prices.

European hopes for a resolution to the Ukraine-Russia conflict have taken a turn, with Donald Trump’s decision to withdraw military support for Ukraine serving to push the onus onto European nations. The ramp up in European military defence spending had been seen as a precursor to maintaining support from the US as all sides work towards a lasting peace solution. However, with Trump both withdrawing support for Ukraine and seeking to lessen the sanctions on Russia, it is clear that the US has sought to tip the scales away from their allies and in favour of their perceived enemy. For Europe, there will an increased desire to find a peaceful solution, as this conflict will become increasingly expensive as they make up for any shortfall in the absence of the US. However, it will be very clear that any agreement forms the basis of future expectations in Russia should they seek to expand their borders once again in the future.

The bad news comes thick and fast at the moment, with Trump also enacting tariffs on their Mexican and Canadian neighbours, threatening to spark a trade war in the Americas. With Trump seemingly caring little for traditional trade relationships, the EU are undoubtedly in the line for a similar treatment. China has been hit by an additional 10% on top of the 10% implemented last month. Notably, the retaliatory measures taken by China have been much more targeted in nature, signalling a willingness to strike a deal to reverse those imposed by the US. While Trudeau has retaliated with 25% tariffs in a bid to show strength, his days are numbered and there is a hope that his successor will be able to find compromise after they are elected on Sunday. In any case, we are clearly stuck in possibly the most uncertain period of the Trump Presidency, with global relationships ripped up and financial markets weakness potentially providing one of the most influential tools to push Trump towards finding a positive solution.

OPEC+ have decided to give up on their long-standing efforts to prop up energy prices through output restrictions, with the group now expected to raise output from April onwards. It is uncertain whether this is a response to Trump’s efforts to control inflation, leaning on the potential actors that might typically hold the power to drive down oil prices. While the three-month low for WTI does help ease some of the concerns around a flare-up in inflation pressures, the simultaneous imposition of tariffs on Canada, Mexico, and China provide a more pressing concern that markets are clearly focusing on for now.