Markets reacted strongly to comments by Donald Trump, who announced plans to impose a 25% tariff on all imports from Canada and Mexico, along with a 10% tariff on Chinese goods starting January 20. The announcement, made during early Asia-Pacific trading hours, triggered immediate volatility across asset classes, with equities, currencies, and commodities all experiencing fluctuations.

Asia-Pacific Markets
Asian equity markets, apart from Hong Kong, closed lower as traders digested the news. Japan's Nikkei was pressured despite expectations of potential rate hikes from the Bank of Japan (BOJ), fueled by recent comments from BOJ Governor Ueda. Markets are pricing in 40 basis points of tightening by mid-2024.
The Japanese yen remained relatively stable, trading within yesterday's range of JPY153.55 to JPY154.40, signaling it was less affected by the tariff news. Meanwhile, the Australian dollar initially dropped to $0.6435, its lowest since August, but rebounded to $0.6500, finding support near $0.6475 as investors reassessed the situation.

European Markets
European equities also felt the pressure, with the Stoxx 600 halting a three-day rally to drop over 0.5%. The euro experienced significant fluctuations, initially falling to $1.0425 after the tariff announcement but recovering to trade around $1.0520 in late European trading.
The British pound fared worse, sliding to a session low of $1.2505 before clawing back to $1.2585. Despite the volatility, neither the euro nor sterling showed lasting signs of weakness by late morning turnover.

American Markets
US equity futures managed to recover from earlier declines, with losses narrowing to modest levels by midday. Commodity markets also showed resilience: gold, which had plunged 3.35% the previous day, rebounded from lows near $2605 to trade above $2630. January WTI crude oil extended its losses marginally but regained ground to trade above $69 during European hours.
The US dollar exhibited mixed performance. Against the Canadian dollar, it surged to a four-and-a-half-year high of CAD1.4180 following Trump's explicit mention of tariffs targeting Canada. However, the broader currency impact of the announcement was limited, with most pairs stabilizing as the session progressed.

Investors are closely monitoring upcoming economic data and the Federal Reserve's policy direction in the wake of Trump's tariff threats. The release of the FOMC minutes later in the session could provide additional clarity on the central bank's stance post-election. However, the immediate focus remains on the potential economic and trade implications of the new administration's tariff policies.