US tariff and inflation fears rattle global markets

LONDON — Stock markets were rattled on Wednesday by worries about incoming US president Donald Trump slapping tariffs on imports and the fading prospects for interest rate cuts.

A CNN report that Trump is considering declaring a national economic emergency to provide legal cover to impose tariffs on all imported goods sent US and European stocks into the red and the dollar higher against major rival currencies.

"Perhaps more than even during his last term of office, traders will need to pay close attention to everything coming from the new President," said David Morrison, senior market analyst at Trade Nation.

"And, just to prove a point, the dollar has soared while risk assets have tumbled on reports that Trump is mulling a national emergency declaration to allow for new tariff program."

Susannah Streeter, head of money and markets at Hargreaves Lansdown said that there is nervousness about the future given Trump's unpredictable governing style.

"Aside from the impact on global trade and growth prospects the big worry is that a big swathe of tariffs will stoke the embers of inflation and fan consumer prices," she said.

"Expectations are growing that this will tie the Fed's hands and limit interest rate cuts in the US even further this year."

The Fed has already lowered its outlook for rate cuts to two reductions this year, down from the four forecast in September before Trump's election victory.

Data released Tuesday and Wednesday pointed to price pressures and a relatively robust US labour market, denting hopes of several more cuts to interest rates in the world's biggest economy.

"Yesterday's signs of rising inflation in the US have combined with an 11-month low in jobless claims to push back expectations of any rate cuts in 2025," said Chris Beauchamp, chief market analyst at online trading platform IG.

The diminished expectations of rate cuts are "weighing on big tech stocks in particular, given that a higher rate environment pushes down the value of their future earnings", said Streeter.

US bond yields have also risen in recent days on the fading expectations of additional US interest rate cuts.

Focus now turns to Friday's release of the key non-farm payrolls report, which will provide a fresh snapshot of the US economy.

In Europe, German industrial orders fell more than five per cent in November, official data showed Wednesday, in the latest sign of headwinds facing the continent's largest economy.

On the corporate front, shares in British energy giant Shell slid 1.4 per cent on a weak trading update ahead of its full year results, capping gains on London's benchmark FTSE 100 index.