Stock Slide Extends, Trump Tariffs Rattle Pharma: Markets Wrap

(Bloomberg) — Global stocks extended their slide into a fourth day as concerns over lofty valuations and mixed signals from Federal Reserve officials on interest rates sapped investor sentiment.

The MSCI All Country World Index declined 0.1% in the longest losing streak in a month, while Asian shares fell 0.7%. Drug companies slumped after President Donald Trump announced a 100% levy on branded or patented pharmaceutical products. S&P 500 futures were little changed while Nasdaq 100 contracts dropped 0.1%. European stocks were set for a modest gain.

The Trump administration is also weighing a plan to slash the US’s reliance on semiconductors made overseas, the Wall Street Journal reported. A Bloomberg gauge of the dollar held near the three-week high and Treasuries traded in a narrow range, heightening focus on the Fed’s preferred inflation gauge, which is due for release on Friday.

After a $15 trillion rebound in global equities from April’s lows, traders now face a wall of uncertainty as tariff headlines return to unsettle markets. The Fed’s next policy move, the upcoming earnings season, and the threat of a US government shutdown are also weighing on sentiment. Attention now turns to Friday’s inflation report after strong US GDP data complicated the outlook for further rate cuts.

“This refreshed threat on pharma has been brought up by Trump several times as a negotiation tool,” said Anna Wu, cross-asset strategist at VanEck Associates Corp. in Sydney. “I expect this to weigh on the health care sector and broader sentiment in global equities, including Asian markets.”

Trump’s announcement was one of several about new industry-focused tariffs set to begin next Wednesday. Imported heavy trucks will be subject to a 25% duty, kitchen cabinets and bathroom vanities will be hit with a 50% charge, and upholstered furniture imports are to be taxed at 30%.

Following the rally, the S&P 500’s 12-month forward price-to-earnings ratio recently touched a high of 22.9, a level that this century was exceeded in just two prior instances: the dot-com bust and the pandemic rally in the summer of 2020 when the Fed reduced rates to near zero.

A Bloomberg gauge of the so-called ‘Magnificent Seven’ fell almost 1% Thursday while a gauge of Asian technology shares plunged 2.5%. Global investors are also reducing chip stocks in South Korea following their hefty gains this month, said Huh Jae-Hwan, an analyst at Eugene Investment & Securities. Samsung Electronics Co. fell over 3% and SK Hynix Inc. 5%.

What Bloomberg strategists say…

Trump’s renewed tariff salvos are likely to set up a challenging day for assets in India and Europe. US equities may shrug off the levies. Investors for now will focus on sectoral and non-US impacts for fresh tariff announcements, rather than driving down the price of US assets the way they did in the first half.

—Garfield Reynolds, MLIV Asia Team Leader. Click here for full analysis.

Money markets slightly reduced bets on rate cuts after the GDP data, projecting about 40 basis points of Fed reductions before the year is over. Divisions within the Fed over the path of rates added to the uncertainty.

Fed Governor Stephen Miran said the US central bank risks damage to the economy by not moving rapidly to lower interest rates, dissenting against the decision to lower rates last week by a quarter percentage point, favoring a half-point cut.

“I don’t think the economy is about to crater,” Miran said Thursday on Bloomberg Surveillance. But given the risks, “I would rather act proactively and lower rates as a result ahead of time, rather than wait for some giant catastrophe to occur,” he said.

Michelle Bowman said inflation was close enough to the central bank’s target to justify more rate cuts because the job market is weakening.

Fed Bank of Chicago President Austan Goolsbee expressed continued concern about tariff-driven inflation and pushed back against any call for “front-loading” multiple rate cuts. His Kansas City counterpart Jeff Schmid signaled the central bank may not need to cut again soon.

Fed Bank of Dallas President Lorie Logan said the US central bank should abandon the federal funds rate as its benchmark in implementing monetary policy, and consider an overnight rate tied to the more robust market for loans collateralized by US Treasuries.

Investors will now turn their focus to Friday’s inflation data. The Fed’s preferred gauge of underlying inflation likely grew at a slower pace last month, offering policymakers some breathing room to address a cooling jobs market.

A report on Friday is forecast to show the personal consumption expenditures price index excluding food and energy rose 0.2% in August, compared with 0.3% in July. On an annual basis, the so-called core measure is seen holding at a still-elevated 2.9%.

In other corners of the market, oil headed for its biggest weekly gain in more than three months as Trump increased pressure on buyers of Russian energy. Gold traded just below a record — on track for a sixth weekly gain.

Corporate News:

Trump advanced plans for American investors to buy TikTok’s US operations from its Chinese owner ByteDance Ltd., with officials setting a potential value of $14 billion. Hanwha Aerospace and other Asian defense shares advanced after European diplomats privately told Russia that NATO is prepared to shoot down Russian planes that violate its airspace. Boeing Co. landed an order for as many as 225 aircraft from Turkish Airlines, 50 of them firm commitments. Volkswagen AG is curbing volumes and introducing temporary shutdowns at two German factories. Some of the main moves in markets:

Stocks

S&P 500 futures were unchanged as of 6:50 a.m. London time Nasdaq 100 futures were little changed The MSCI Asia Pacific Index fell 0.7% Japan’s Topix was little changed Australia’s S&P/ASX 200 was little changed Hong Kong’s Hang Seng fell 0.3% The Shanghai Composite was little changed Euro Stoxx 50 futures rose 0.3% Currencies

The Bloomberg Dollar Spot Index was little changed The euro rose 0.1% to $1.1679 The Japanese yen was little changed at 149.69 per dollar The offshore yuan was little changed at 7.1408 per dollar The British pound was little changed at $1.3355 Cryptocurrencies

Bitcoin was little changed at $109,222.58 Ether rose 1.1% to $3,932.17 Bonds

The yield on 10-year Treasuries advanced one basis point to 4.18% Japan’s 10-year yield advanced 1.5 basis points to 1.655% Australia’s 10-year yield advanced five basis points to 4.39% Commodities

Spot gold was little changed West Texas Intermediate crude rose 0.4% to $65.23 a barrel This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi and Youkyung Lee.

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