NEW YORK AND LONDON: U.S. stocks sank and bonds rallied after President Donald Trump aimed his tariff weapon on economies from South America to Europe and China, denting hopes for a global recovery.
The S&P 500 Index extended a three-day rout to 2.5% after Trump indicated he’d be willing to wait another year before striking an agreement with China - casting doubt on the likelihood of a phase-one accord this month. He also threatened tariffs on France a day after hitting steel from Brazil and Argentina. Treasuries, gold, the yen and Swiss franc paced gains among haven assets.
European shares fell back into the red on Tuesday, abandoning earlier efforts to claw their way back from three days of falls.
Those comments, made as Trump landed in Britain for a NATO summit, also sent the offshore-traded Chinese yuan to near five-week lows. France, the latest U.S. trade war target, saw shares tumble more than 0.6% to a one-month low .
A pan-European equity index, fell 0.2%, giving up earlier modest gains and extending Monday’s 1.6% tumble which was its biggest one-day loss in two months. U.S. stock futures also turned negative, with S&P 500 futures down 0.4%.
Trump’s willingness to open new fronts in the trade war despite signs of economic damage has unnerved markets.
His latest comments appear to dash hopes that an agreement with China could be reached before another round of tariff hikes kicks in on Dec. 15, and suggests talks could in fact could drag on for another year.
Markets had fallen sharply on Monday after Trump tweeted he would slap tariffs on Brazil and Argentina for what he saw as both countries’ “massive devaluation of their currencies.” The United States then threatened duties of up to 100% on French goods from champagne to handbags because of a digital services tax that Washington says harms U.S. tech companies.
“Each step back and each step forward is just part of a slow trend towards increased barriers to international trade,” said Jonathan Bell, CIO of Stanhope Capital.
“The market’s taken an optimistic view so far this year on the likelihood of a successful outcome to trade negotiations and we worry ... the market may turn back to being more concerned.” Shares in some French luxury goods firms have been hit hard, with LVMH shedding almost 2% to one-month lows and champagne maker Vranken Pommery down 0.5%.
“If history is any guide the Europeans are likely to find U.S. crosshairs start to move increasingly their way, the closer to next year’s U.S. election we get,” CMC Markets told clients.
MSCI’s world equity index is down for the fourth day in a row to one-week lows. There were also hefty losses across Asian bourses earlier in the day.
Investors are waiting for the next developments on the trade front. China has already barred U.S. military ships and aircraft from Hong Kong in response to U.S. support for pro-democracy protesters in the Chinese-ruled territory.
Fears that the prolonged tariff spat will snuff out any upturn in global growth were fanned on Monday when the U.S.
Institute for Supply Management (ISM) said manufacturing had contracted for a fourth straight month as new orders slid.
That dampened the cheer from upbeat Chinese factory surveys as well as higher-than-expected manufacturing and inflation readings from the euro zone.
Hopes are being pinned on the U.S. consumer to keep the economy afloat. Cyber Monday sales were expected to hit a record following $11.6 billion in online sales during the Thanksgiving and Black Friday shopping bonanza.
Trump’s hints of trade deal delays sent bond yields tumbling as investors dumped stocks, however, with 10-year U.S. Treasury yields falling 5 basis points to 1.79% from the previous day’s two-week high.
German bond yields meanwhile, slipped off three-week highs but bond prices are likely to stay under pressure amid renewed risks of early elections or a minority government in the biggest euro zone economy.
The safe-haven bid was in evidence on currency markets too, with the yen at a one-week high to the dollar. The euro edged away from a near two-week peak versus the greenback . The dollar index slipped to a two-week low.
“This may have run its course, but there’s no reason to chase the dollar’s upside from here,” Daiwa Securities’ foreign exchange strategist Yukio Ishizuki said, noting that the weak manufacturing data had forced many to cut long dollar positions.
“Trade friction remains a lingering threat, which is not good for market sentiment.”