Markets advance as Trump’s tone on tariffs is softer than feared

Dow rise 310, advancers over decliners 4-1 & NAZ went up 24.  The MLP index gained another 3+ to the 324s, extending its latest rally, & the REIT index added 5+ to 405.  Junk bond funds were flattish & Treasuries had some buying which reduced yields (more below).  Oil dropped 1+ to the 68s (more below) & gold was steady at 2748.

Dow Jones Industrials

In an early sign of an intensified focus on trade, Pres Trump said that tariffs could be levied against Mexico & Canada as soon as early Feb.  “We’re thinking in terms of 25% (levies) on Mexico and Canada, because they’re allowing a vast number of people” over the border, Trump said.  The pres called Canada “a very bad abuser” & said a target date for the tariffs would be “I think Feb. 1”  The remarks were made as the newly minted chief exec offered a slew of exec orders aimed at everything from regulations to free speech to immigration.  While it's been no secret that Trump plans on implementing across-the-board duties on US trading partners, the timing & extent has been in question.  There had been some speculation that the tariffs could be delayed & might be targeted at certain essential items rather than being more broad-based.  Trump provided no further details on how & when the tariffs could come.  Trump reportedly has been considering a 25% tariff on Canadian goods, part of plans to impose 10% duties on all countries that could escalate over time.  Such a move against Canada would hit its economy hard considering the 2 nations do in excess of ½ a T $s a year in trade.  The pres also toyed with the idea of hitting China with intensified tariffs over social media site TikTok.  Trump rescued the app from being shuttered in the US with a temporary reprieve that likely will depend on the owner finding a US partner.  Should China not agree to that, Trump said he could use a tariff as a persuasion tool.  “If we wanted to make a deal with TikTok and it was a good deal and China wouldn’t approve it, then I think ultimately they’d approve it, because we’d put tariffs on China,” he said.  “I’m not saying I would, but you certainly could do that.”  Along with seeking to protect US business interests, Trump has said he wants to use the levies as ways to encourage Canada & Mexico to clamp down on fentanyl trafficking.  In his inaugural address, Trump pledged to designate intl drug gangs as terrorist groups.  Doing so gives the administration additional tools in fighting the inflow of drugs across the border.  “I will immediately begin the overhaul of our trade system to protect American workers and families,” Trump said.  “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”  He further established the External Revenue Service, set up to help collect the duties, which he said will lead to “massive amounts of money” to come into the federal coffers.  The US Customs & Border Protection agency currently serves that role.

Trump says he’s thinking of imposing 25% tariffs on Canada and Mexico in February

Treasury yields were lower, as investors digested Pres Trump's return to the White House & a slew of new exec orders.  The 10-year Treasury yield was lower by more than 2 basis points at 4.587% & the 2-year Treasury yield was down marginally at 4.27%.  1 basis point is equal to 0.01% & yields & prices move in opposite directions.  After his inauguration at the Capital, Trump signed over 40 exec orders at the Capital One Arena to an audience of 20K supporters.  Trump also made comments about tariffs as he was signing exec orders, saying he's thinking of imposing 25% tariffs on Mexico & Canada from Feb because of their border policies.  He also mentioned China, saying the country will be hit with intensified tariffs if it doesn’t approve a TikTok deal.  However, Trump said he's not ready to impose universal tariffs yet.  Investors will be on the alert to see if Trump enacts some of the pro-business policies he promised throughout his campaign.

Treasury yields fall as investors digest Trump’s return to the White House 

The head of 1 of Europe's buzziest artificial intelligence startups said he expects artificial intelligence technology will move beyond large language models this year.  Arthur Mensch, CEO of French AI firm Mistral, said he sees product focus in AI broadly moving away from models in 2025 & more toward “systems” that integrate models & contextual business data.  “I think the focus should shift to systems,” Mensch added.  “Models are a part of systems, but systems are connected to data, connected to tools, able to actually do things on your behalf, able to act in an agentic way.”  Founded only 2 years ago, Mistral has quickly become 1 of Europe's most hyped AI companies, achieving a $6B valuation & backing from US tech giant Microsoft (MSFT), a Dow stock, last year.  Considered a competitor to OpenAI, the startup is behind the development of several open-source large language models.  Last year saw a lot of buzz emerge in the tech industry over AI “agents.”  This refers to the idea of AI assistants that can take actions autonomously with limited human supervision.  Unlike AI chatbots such as ChatGPT, models are meant to operate largely in the background.  Mensch sees AI systems in the future benefiting the large language models that are integrated within them.  He said that by connecting models to relevant contextual data, they'll become better at offering tailored solutions for different business needs.  “That’s that’s where this is shifting,” Mensch said.  “It also means that the industry that is adopting it is going to distill its expertise into those systems — and that’s where that’s going to be necessary to actually drive the value of AI into those industries.”

Microsoft-backed firm Mistral sees the world moving beyond AI models this year

Stocks climbed as investors assessed Pres Trump's wave of first-day orders & the prospect of historic tariffs being imposed on Mexico & Canada within weeks.  Markets got a dose of relief as Trump held off from firing off the barrage of universal tariff hikes expected by many on his first day in office.  China got a surprise reprieve as Trump failed to act on promised high duties on its imports.  US stock futures rose, & the $ pulled back from a near 2-year high yesterday.  But the mood shifted after Trump said later in the day that he was looking at imposing 25% duties for Mexico & Canada starting Feb 1.  Chinese stocks closed with only slight gains, suggesting investors aren't convinced that a US-China reset is coming to avert a trade war.