CNBC Daily Open: A new day, a new Trump policy for markets to digest

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Rates to come down “gradually”
U.S. Federal Reserve officials anticipate lowering interest rates “gradually” to “a more neutral stance,” minutes of the Fed’s November meeting showed. That’s contingent on inflation continuing to “move down sustainably to 2 percent and the economy remaining near maximum employment” in line with Fed officials’ expectations.

Markets move past tariff threats
Markets in the U.S. moved past President-elect Donald Trump’s threat of more tariffs to scale new highs on Tuesday. The S&P 500 and Dow Jones Industrial Average closed at record highs. Europe’s Stoxx 600 fell 0.57%, weighed down by auto stocks, which dropped 1.7% on news of the tariffs. Daimler Truck slumped 6%.

Tariffs put the brakes on automakers
Shares of General Motors and Stellantis slumped following Trump’s announcement on Tuesday of a 25% tariff on goods imported from Canada and Mexico into the U.S. Goldman Sachs estimates those tariffs, in addition to the 10% on goods from China also proposed by Trump, will raise a measure of core inflation by nearly 1%.

Ceasefire between Israel and Hezbollah
A permanent ceasefire between Israel and Lebanon’s Hezbollah is scheduled to begin Wednesday, announced U.S. President Joe Biden. The deal, which was brokered by France and the U.S., aims to complete the withdrawal of Israeli forces from Lebanon over the next 60 days. Israel and Hezbollah have been engaged in a protracted conflict.

 [PRO] Data might show annual inflation ticking up
The personal consumption expenditures price index is the Fed’s preferred measure of inflation. The index for October will be released on Wednesday – and economists are expecting the headline number to tick up on an annual basis.

Even before Trump enters the White House, investors are already living in his world. That portends the influence Trump, as president, will have on the economy and markets.

Upon Trump’s election win, the so-called “Trump trade” has flourished, with risk assets in general on an upward trajectory.

The market rally stalled for a while as investors digested the possible increase in inflation and drop in economic growth due to Trump’s policies, but was jolted back to life after Trump picked Scott Bessent as his Treasury secretary.

Most recently, Trump announced he would raise tariffs by an additional 10% on Chinese goods entering the U.S., and new tariffs of 25% on those from Mexico and Canada. Those three countries alone account for 43% of U.S. goods imports, wrote Goldman Sachs’s chief economist Jan Hatzius.

“The truth is that the drag from tariffs on growth is likely to outweigh tax cuts on the forecast horizon,” said Gregory Daco, chief economist at EY-Parthenon.

Automakers felt that sting most keenly because virtually all with a presence in the U.S. manufacture vehicles and parts in Mexico —  26% of auto imports into the U.S. are from Mexico, reported UBS. Shares of automakers GM, Stellantis and Ford Motor fell on reports of Trump’s planned tariffs.

That said, while individual stocks staggered, the broader market advanced. The S&P 500 rose 0.57% and the Dow Jones Industrial Average added 0.28%, with both indexes hitting fresh closing highs. The Nasdaq Composite climbed 0.63%.

“Markets have become a lot more comfortable with the prospects of these tariffs being more bluster and more negotiating tactics than actual implementation,” Jamie Cox, managing partner at Harris Financial, said.

Posturing or not, it’s likely Trump’s proposed policies will sway the markets in the foreseeable future.

— CNBC’s Sarah Min, Alex Harring and Samantha Subin contributed to this report.