Trump's Trade War Kicks In

Concerns over President-elect Donald Trump's "America First" policies were heightened as he announced plans to impose further tariffs on China, Mexico, and Canada, which would weigh on cryptos, emerging market assets, and the dollar, which was gaining ground.

The president-elect has unleashed a tariff threat, and if his first term is anything to go by, this is his first step as a negotiating strategy.

Even though the impending 25% tariffs on all Canadian and Mexican goods and 10% on all Chinese products are just a mere negotiating tactic, the message is loud and clear: 

The second Trump era has already started, even though the president-elect has not yet taken office.

Import duties were pledged to be increased by 10% on Chinese goods by Trump, who justified them by saying they were needed to stop the flow of illegal narcotics and migrants. 

Source: Bloomberg

Tit-For-Tat Trade Tariffs Threaten Global Markets

Now, leaders in Mexico and Canada have warned of tit-for-tat tariffs on the US.

As a result, the offshore yuan, the Mexican peso, and the currency of Canada declined by more than 1% while the dollar index rose. Treasury rates rose, with the options market pointing to a deep sell-off.

Following a day of gains for US equities and Treasuries, Trump's announcement comes after his selection of Scott Bessent as Treasury Secretary. 

Speculators hope that Bessent, a former hedge fund manager, will bring a Wall Street perspective to the position. 

Despite Bessent's claims that Trump is using a maximalist negotiating stance, on November 15, he wrote an op-ed for Fox News in which he strongly supported tariffs.

Trump's transition team was seen boosting the president-elect's tariff program on Wednesday.

The team is reportedly preparing to appoint Jamieson Greer as US Trade Representative.

Greer heavily influenced Trump's trade policy decisions during his first term. 

The shenanigans threaten to weigh on international trade and, in turn, the world economy, inflation and global easing.

Cryptos have taken a hit after the post-election chart-bursting rally from Trump's pro-crypto stance.

While Trump's crypto embrace has not changed, Bitcoin is down around 7% in the last three days after failing to breach the historical and psychological $100,000 mark.

Why?

The expected tariff game is likely to weigh on inflation, which has just started to ease after being stubbornly high since the pandemic-led supply chain distortions and the wars in Europe and the Middle East.

Just when global central banks predicted that high inflation was in the rearview mirror, the expected push to price pressures from trade tariffs will add another layer of dilemma for central banks.

Crypto's boost this year was from the Federal Reserve's easing.

The Fed is now expected to examine how Trump's reflation policies will affect its current easing cycle.

All it took was one post by Trump on his social media platform to shake global markets.

After Trump's tariff announcement, developing markets took a hit, and Asian stock markets remained rangebound on Wednesday. 

US stock futures point to a jittery open after Wall Street stocks notched another record high on Tuesday.

The offshore yuan, the Mexican peso, and the Canadian currency were range-bound after declining by more than 1%, while the dollar index rose. 

Following Trump's tariffs threats, the dollar climbed while oil prices remained relatively unchanged.

The appeal of gold also diminished as the dollar strengthened.

The de-escalation of tensions in the Middle East drained haven demand, causing gold to plummet 3.4% in the previous session. 

Bullion was trading at around $2,630 an ounce. 

Tensions in the Middle East seem to be abating somewhat at the same time as the risks of Trump's policies become more apparent.

The bond market is bracing for a further jump in Treasury rates in the coming weeks, as indicated by the negative tone that has taken hold of the interest-rate options market.

January contracts for benchmark 10-year Treasury notes, with an expiry on December 27th, reflect a surge in deep market sell-off bets.

February options, which expire on January 24 — the week of President-elect Donald Trump's inauguration — have also been seeing increasing positioning.

The bets show that investors are still cognisant of the possibility that the so-called Trump trade might regain momentum, even though yields have given up most of their post-election gains. 

There has been an assumption in that trade for months that his policies, such as greater tariffs, will accelerate inflation and increase rates. 

Tuesday saw a slight decline in Treasuries, leading to a small increase in 10-year rates after Trump warned of imposing further tariffs on US trading partners.

However, bets against Bitcoin in the ultra-short positioning saw record ETF inflows within the crypto space.

Some investors think the rise in cryptos led by Trump's win is running out of legs.

A fund that allows people to gamble against Bitcoin saw its greatest daily inflows.

Investing in the opposite daily performance of the token is the goal of the ProShares UltraShort Bitcoin exchange-traded fund. 

On Monday, the fund's net inflow hit $18.8 million, its highest level since April. 

Additionally, the ProShares Short Bitcoin ETF had record-high inflows of around $23 million in the previous two trading days, ranking among the largest inflows for the year.

Source: Bloomberg

Clearly, pro-Bitcoin bets are fast turning into anti-bets.

Important events for these option bets include Trump's inauguration next month and a number of others. 

To begin with, there will likely be a large increase in employment compared to the previous month in next week's announcement on November job numbers.

The Federal Reserve policy statement is due on December 18. 

In light of the signals of economic resiliency, traders see the decision of whether policymakers would cut interest rates by another quarter-point or remain steady as a coin flip.

Coinciding with flows into funds shorting Bitcoin, Bloomberg data shows that a group of 12 spot ETFs that invest directly in the OG token had a $438 million outflow, the third-biggest since their introduction in January.

For now, the tariff threat seems to be outweighing the positives of Trump's pro-crypto policies, revealing the president-elect's different avatars in plain sight.