U.S. stock futures slipped Monday morning as investors confronted an unusually volatile mix of headwinds: President Donald Trump’s threat to impose 100% tariffs on Canada, surging odds of a government shutdown by week’s end, and a pivotal Federal Reserve meeting, all against the backdrop of major tech earnings on deck.
In Asian trading, Dow Jones E-mini futures fell 119 points while Nasdaq 100 futures dropped 89 points. S&P 500 futures declined 16 points. The selling pressure eased slightly after Canadian Prime Minister Mark Carney clarified that Ottawa has no plans to pursue a comprehensive free trade agreement with China, addressing one of Washington’s central complaints.
Canada Tariff Escalation
The Canada situation escalated dramatically over the weekend. Trump warned Saturday that he would impose 100% tariffs on all Canadian goods if Prime Minister Carney pursues trade deals with Beijing, a reversal from just days earlier when the president called a limited Canada-China agreement “a good thing.”
“If Governor Carney thinks he is going to make Canada a ‘Drop Off Port’ for China to send goods and products into the United States, he is sorely mistaken,” Trump wrote on Truth Social, pointedly referring to the Canadian leader by his former title as Bank of Canada governor rather than prime minister.
The threat came after Carney delivered a pointed rebuke of U.S. trade policy at the World Economic Forum in Davos, warning of a “rupture” in global relations and calling out nations that use “tariffs as leverage” and “financial infrastructure as coercion,” language widely interpreted as criticism of the Trump administration.
Treasury Secretary Scott Bessent doubled down Sunday, accusing Carney of doing an “about face” with the China deal and dismissing his Davos speech as “virtue-signaling to his globalist friends.”
Shutdown Odds Surge to 79%
The second major market headache: a government shutdown that now appears increasingly likely. Prediction market Polymarket shows a 79% probability of a funding lapse by this Saturday’s January 31 deadline, up from roughly 30% before the weekend and just 9% on January 23.
The dramatic shift traces directly to Minneapolis, where Border Patrol agents fatally shot Alex Pretti, a 37-year-old ICU nurse, on Saturday. That killing, coming just weeks after ICE agents shot and killed Renee Good in the same city, has galvanized Senate Democrats to block the $1.2 trillion funding package that passed the House last week.
“What’s happening in Minnesota is appalling, and unacceptable in any American city,” Senate Minority Leader Chuck Schumer said Saturday night, announcing Democrats would refuse to advance the package if it includes $64.4 billion in Department of Homeland Security funding. “I will vote no.”
The timing couldn’t be worse for negotiations. A major winter storm has closed the Senate until at least Wednesday, leaving just days to find a resolution before funding expires. Senator Amy Klobuchar of Minnesota declared flatly on Sunday: “No, I am not voting for this funding.”
A Consequential Week Ahead
Beyond the political drama, markets face a gauntlet of catalysts this week. The Federal Reserve concludes its two-day policy meeting Wednesday, where traders widely expect the central bank to hold interest rates steady at 3.5% to 3.75% after three consecutive cuts in late 2025. CME FedWatch shows a 97% probability of no change.
Fed Chair Jerome Powell’s commentary will be closely watched, particularly as the Trump administration is reportedly close to nominating his replacement. Treasury Secretary Bessent said in Davos that a decision could come “as soon as next week,” with the field narrowed to four candidates.
Then there’s the earnings calendar: Apple, Microsoft, Meta, and Tesla all report this week, a lineup that will test whether Big Tech can maintain its dominant market position. Several Magnificent Seven stocks are already trading in the red for 2026, with Apple and Meta both down 8% year-to-date and Microsoft off 6%.
Markets Have Learned to Be Skeptical
Some analysts urged calm. Jonas Goltermann, deputy chief markets economist at Capital Economics, said investors have learned to be skeptical of Trump’s tariff threats and downplayed the odds of a repeat of 2025’s trade chaos. “Given their deep economic and financial ties, both the US and Europe have the ability to impose significant pain on each other, but only at great cost to themselves,” he wrote. “The more likely outcome, in our view, is that both sides recognize that a major escalation would be a lose-lose proposition.”
UBS economist Paul Donovan noted that any partial shutdown would be less disruptive than last year’s 43-day closure, since several agencies are already funded through September.
But for traders starting the week, the uncertainty is real. Research from the Kiel Institute found that Americans are paying 96% of the cost of Trump’s tariffs, with nearly all costs falling on importers and consumers. A 100% levy on Canadian goods, covering everything from auto parts to oil to lumber, would represent a significant escalation.
The Japanese yen’s surge added another layer of pressure Monday. The USD/JPY pair dropped below the crucial 155 level to a low of 153.89, its weakest since mid-November, after Prime Minister Sanae Takaichi warned that Tokyo would “take necessary steps against speculative or very abnormal market moves.” The stronger yen sent the Nikkei 225 down 1.7%, contributing to the risk-off tone.
Wall Street opens at 9:30 a.m. Eastern with no shortage of questions. Whether cooler heads prevail in Washington, or whether Minneapolis becomes the flashpoint that shuts down the government for a second time in three months, remains very much an open question.