NEW YORK: World equity markets slid further and the US dollar dropped to its lowest in more than two years against the yen on Friday as concern over protectionism added to investor uncertainties about rising inflation and the outlook for US interest rates.
President Donald Trump’s pledge on Thursday to impose hefty tariffs on steel and aluminum imports raised the prospect of a global trade war that could weaken a healthy US economy that is poised to deliver record corporate earnings.
The rout in risk assets knocked the dollar from multi-week highs as the specter of protectionism spurred fear of retaliation by other nations, which would be negative for the greenback.
Canadian Prime Minister Justin Trudeau called the imposition of any US steel and aluminum tariffs “absolutely unacceptable.”
Major equity indices in Europe fell on Friday more than 2%, as markets in Europe and Asia were closed when Trump’s tariff proposal was announced on Thursday. The Nikkei index fell 2.5% in Tokyo and the Hang Seng index fell 1.5% in Hong Kong.
Asian steelmakers were hit hard, with South Korea’s Posco down 3.6% and Japan’s Nippon Steel off 3.8%. Toyota Motor shares slid 2.4% after it said tariffs would substantially raise production costs and the price of cars and trucks sold in America.
Trump’s move could herald the tough trade actions he had promised during the electoral campaign as a way to incentivize companies to just “buy American, hire American,” said John Doyle, vice president of dealing and trading at Tempus Inc. in Washington.
“The US dollar may face some scrutiny and as a result struggle to hold on to recent gains,” Doyle said. “It is the type of scenario that is unprecedented, thus wild swings may occur as this is digested and analyzed the next few days.”
Volatility will continue until investors get some clarity on the path of US interest rates, inflation, global trade policy and the international response, said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.
“Investors do not like uncertain outcomes, they just don’t,” Arone said. “If we could just eliminate some of this noise, there’s a really healthy underlying stock market.”
MSCI’s gauge of stock performance in 47 countries fell 0.29% while the pan-European FTSEurofirst 300 index of leading regional shares lost 2.13% to close at 1,437.14.
The sell-off in European stocks weighed particularly on the export-oriented German DAX index, which fell 2.27% to a six-month low.
ArcelorMittal SA, the world’s biggest steelmaker, fell 3.7% while euro zone automakers and parts companies fell 2.2%.
On Wall Street, the Dow Jones Industrial Average fell 210.36 points, or 0.85%, to 24,398.62. The S&P 500 lost 3.59 points, or 0.13%, to 2,674.08 and the Nasdaq Composite added 25.30 points, or 0.35%, to 7,205.87.
The dollar index fell 0.41%, with the euro up 0.49% to $1.2327. The Japanese yen firmed 0.66% versus the greenback at 105.56 per dollar.
The Mexican peso lost 0.13% to 18.86, while the Canadian dollar fell 0.43% versus the greenback at 1.29.
US Treasury yields rose, with the 10-year yield bouncing back from a three-week low as the Bank of Japan’s chief hinted at a possible exit from its ultra-easy policies if inflation hits its target in its fiscal 2019.
Benchmark 10-year notes fell 14/32 in price to push its yield up 2.8552%.
Germany’s benchmark 10-year Bund yield dropped as low as 0.606 – its lowest since late January – before inching up to 0.648%.
Oil prices rose as Wall Street stocks bounced off session lows, but crude benchmarks declined for the first time in three weeks on fears US plans to impose tariffs on steel and aluminium could squeeze economic growth, and as US crude inventories climbed.
US crude rose 26 cents to settle at US$61.25 per barrel and Brent settled up 54 cents at US$64.37 per barrel.