Trump’s tariff threat unsettles global markets.
European stocks fall, dollar retreats from 12-month high.
China’s currency continued its weakening trend after its biggest fall against the dollar.
What you need to know:
> US President considering levies on all Chinese imports
> US stocks steady, European carmakers take big hit
> Dollar on defensive, Treasury yields rebound
> US yield curve steepens sharply
> Onshore renminbi weakens past Rmb6.8 per dollar
Fresh concerns about the prospect of a global trade war unsettled financial markets yesterday after Donald Trump threatened to slap tariffs on all Chinese imports to the US — hard on the heels of his criticism on Thursday of the Federal Reserve’s recent interest rate rises.
On Wall Street, the tariff concerns were offset to some degree by a sharp rise for Microsoft shares after the company’s quarterly results exceeded expectations. The tech-heavy Nasdaq Composite index was on track to close at a record high.
But in Europe, carmaking stocks were badly hit, with the Stoxx 600 index tracking the sector falling 2.1 per cent. That helped push the German Xetra Dax index down 1 per cent, a bigger fall than most of its regional peers.
“The US currently plans to impose tariffs on imports from China worth $250bn, out of a total of just over $500bn last year, so this latest threat would represent a significant step up in its protectionist trade policies if enacted,” said Capital Economics.
“Although the S&P 500 has proved fairly resilient to trade worries so far, we doubt that this will last. The retaliation by other countries to US protectionism so far has mostly been aimed at US farmers, not multinationals. But that could change.”
Meanwhile, the dollar index — a measure of the US currency against a basket of peers — was down 1.1 per cent from a 12-month hit on Thursday before Mr Trump said was “not thrilled” about the Fed raising rates and warned that a strong dollar “puts us at a disadvantage”.
“It does appear that not only do we appear to be heading for a trade war, but it also looks like currencies are about to be brought on to the field of battle as well, as the US administration tries to limit the effects of its own fiscal stimulus,” said Michael Hewson at CMC Markets UK.
Mr Trump’s comments on Thursday followed Jay Powell’s semi-annual monetary policy testimony to Congress, in which the Fed chairman gave a bullish assessment of the US economic outlook and signalled that interest rates would continue to rise gradually “for now.”
Despite Mr Trump’s comments on monetary policy, longer-dated Treasury yields rose yesterday, with the gap between two- and 10-year yields rising to the highest for eight days.
The 2-10 spread has fallen steadily in recent months, fuelling concerns about a possible inversion of the yield curve that many see as a harbinger of recession.
The dollar’s retreat provided some respite for sterling after a week in which a series of weaker than forecast UK economic data releases, as well growing uncertainty over Brexit, cast doubt on whether the Bank of England would raise interest rates next month.
The pound briefly dipped below the $1.30 level to a 10-month low earlier this week.
There were big falls for industrial metal prices this week, with copper briefly sliding below $6,000 a tonne, although the metal rallied yesterday to trim its weekly drop to about 1.5 per cent.
Oil prices had a choppy week as concerns about increased global supply came to the fore. Brent was heading for a weekly drop of 3 per cent.
Gold, meanwhile, bounced off a 12-month low yesterday as the dollar weakened but was still down 1 per cent over the five days.
By midday in New York, the S&P 500 was up 0.1 per cent at 2,806, while the Nasdaq Composite index was 0.2 per cent higher. Microsoft shares were up 2.5 per cent.
Across the Atlantic, the pan-European Stoxx 600 finished 0.2 per cent lower, with the FTSE 100 in London shedding 0.1 per cent.
Japan’s Topix closed down 0.3 per cent.
In Hong Kong, the Hang Seng index rose 0.8 per cent, bouncing up off a 10-month low. In mainland China the CSI 300 rose 1.9 per cent.
Forex and fixed income:
The dollar index was down 0.6 per cent at 95.49, after reaching 95.65 on Thursday.
The euro was up 0.6 per cent at $1.1.1711 while the greenback was off 0.7 per cent versus the yen ¥111.68.
Sterling was up 0.8 per cent at $1.3117.
The yield on the 10-year US Treasury was up 4 basis points at 2.89 per cent while that on the 30-year bond was 6bp higher at 3.03 per cent. The two-year was flat at 2.60 per cent.
China’s onshore renminbi — which trades in a 2 per cent band either side of a daily midpoint set by the country’s central bank — is 0.3 per cent weaker at Rmb6.7912 having touched Rmb6.8106, its weakest since June 2017.
Copper climbed 1.4 per cent in London to $6,147 a tonne, after touching a one-year low of $5,988 on Thursday.
Brent crude was up 0.4 per cent at $72.86 a barrel, while US West Texas Intermediate was 1.1 per cent higher at $70.25.
Gold was $6 higher on the day at $1,229 an ounce.