BUZZ-COMMENT-Tariff scepticism could trigger deeper market sell-off

Feb 3 (Reuters) - Over the weekend U.S. President Donald Trump signed an order to impose hefty tariffs of 25% on Mexico and Canada as well as 10% tariffs on China. This has taken markets by surprise, in large part due to these tariffs coming into effect much sooner than expected – Feb. 4 – which means there is very little time for negotiations to allow them being avoided.

The fact that U.S. equities were trading near record highs emphasises that traders have been complacent over tariff risks, likely stemming from the Day 1 tariff disappointment. This complacency also spread to political leaders with the Mexican President saying last week that she did not think the U.S. would impose tariffs on Feb. 1.

Despite the recent announcements, there is still an air of scepticism over whether the imposition of these tariffs will be maintained or used instead as a negotiation tactic to bring about a quicker agreement. Goldman Sachs noted that they believe tariffs on Mexico and Canada will be short-lived. Meanwhile, betting exchanges, such as Polymarket, attach a 39% chance that tariffs on Canada will be removed before March.

This level of scepticism that these tariffs will be longer lasting leaves stocks vulnerable to a deeper setback and thus keep dollar risks firmly skewed to the topside. While Trump will speak with the leaders of Canada and Mexico later today an agreement looks a low probability outcome at this stage.

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