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Specter of Full Trade War Returns to Batter Stocks: Markets Wrap

An electronic stock board outside a securities firm in Tokyo, Japan.

(bloomberg)

(Bloomberg) -- Fears of a trade war between the world’s two largest economies returned to haunt markets on Wednesday, mauling U.S. stock futures and sinking equities across Europe and Asia. Treasuries climbed while the dollar was steady, and gold jumped.

Any hope that U.S. equity market gains on Tuesday would lead to a more lasting rebound appeared dashed as contracts for the S&P 500, Nasdaq 100 and Dow all slumped, outpacing drops for both the Stoxx Europe 600 Index and the MSCI Asia Pacific Index. China said it would levy 25 percent tariffs on imports of 106 U.S. products including soybeans, automobiles, chemicals and aircraft, in response to proposed American duties on its high-tech goods. Safe-haven assets including bullion and the Japanese yen rallied, while European bonds tracked the jump in Treasuries.

Terminal users can follow the escalating trade tensions in our live blog.

Markets have been buffeted in recent weeks by everything from a volatility spike and a tech selloff to fears of an all-out trade war, and developments on Wednesday suggest there may be more turbulence to come. Investors are having to weigh the growing protectionist rhetoric between the U.S. and China against the chances of measures having a meaningful effect on the still-upbeat global growth picture.

“Trade uncertainty is the main headwind to the market,” Charles St-Arnaud, an investment strategist at Lombard Odier Asset Management in London, said by phone. “At this juncture we need to be careful. The macro picture hasn’t changed massively yet. Growth remains robust, unless we go into a bigger trade war.”

Elsewhere inflation data from Europe matched estimates, and the euro stayed higher. West Texas oil fell as commodities were roiled by the growing trade dispute, while emerging-market stocks tumbled and their currencies dropped.

“This is a tricky one for markets,” said Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen. “This inherent unpredictability will weigh on global economic growth. Sentiment is quite negative and the one thing that could change this is some sort of signal from central banks that they are willing to adapt their hawkish tone.”

Here are some key events coming up this week:

  • U.S. employment data are due Friday; the jobless rate probably fell in March after holding at 4.1 percent for five straight months.
  • The Reserve Bank of India decides on policy Thursday.

These are the main moves in markets:

Stocks

  • The Stoxx Europe 600 Index sank 0.9 percent as of 8:44 a.m. New York time on the largest decrease in almost two weeks.
  • Futures on the S&P 500 Index declined 1.4 percent.
  • The MSCI All-Country World Index declined 0.3 percent.
  • The U.K.’s FTSE 100 Index dipped 0.3 percent to the lowest in more than a week.
  • Germany’s DAX Index decreased 1.1 percent on the largest dip in more than a week.
  • The MSCI Emerging Market Index fell 1.6 percent to the lowest in almost eight weeks.
  • The MSCI Asia Pacific Index fell 0.7 percent to the lowest in almost eight weeks.

Currencies

  • The Bloomberg Dollar Spot Index dipped less than 0.05 percent.
  • The euro advanced 0.2 percent to $1.2289.
  • The British pound declined 0.1 percent to $1.4046.
  • The Japanese yen climbed 0.4 percent to 106.23 per dollar.

Bonds

  • The yield on 10-year Treasuries fell two basis points to 2.75 percent.
  • Germany’s 10-year yield dipped one basis point to 0.49 percent, the lowest in 12 weeks.
  • Britain’s 10-year yield declined two basis points to 1.359 percent, the lowest in almost 11 weeks.

Commodities

  • West Texas Intermediate crude fell 1.5 percent to $62.57 a barrel, the lowest in more than two weeks.
  • Copper sank 2.5 percent to $2.99 a pound and the biggest tumble in eight weeks.
  • Gold increased 1 percent to $1,346.43 an ounce, the highest in more than a week.
  • The Bloomberg Commodity Index decreased 1.1 percent to 86.05, the lowest in almost eight weeks on the biggest tumble in almost eight weeks.

--With assistance from Andreea Papuc Sofia Horta e Costa and Sheldon Reback

To contact the reporters on this story: Samuel Potter in London at spotter33@bloomberg.net, Cecile Gutscher in London at cgutscher@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Todd White

©2018 Bloomberg L.P.

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