The threat of a trade war sent world stock markets broadly lower in choppy trading on Friday and boosted safer assets like the yen and government bonds, a day after U.S. President Donald Trump announced tariffs on up to $60-billion of Chinese goods.
Mr. Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60-billion of imports from China, although the measures have a 30-day consultation period before they take effect.
After another bruising week, a key gauge of world equity markets was broadly headed for its first quarterly loss since early 2016 as a spike in volatility, rising inflation and the specter of a trade war spooked investors who had enjoyed a multi-year bull run.
MSCI's gauge of stocks across the globe shed 1.8 per cent. The index lost 3.4 per cent this week for its worst week since early February when a spike in volatility had sent markets into a tailspin.
"The equity markets are getting clobbered, which is not that surprising with fears of a trade war breaking out," said Paul Fage, a TD Securities emerging markets strategist.
The losses accelerated near the close of U.S. trading.
The Dow Jones Industrial Average fell 424.69 points, or 1.77 per cent, to 23,533.20, the S&P 500 lost 55.43 points, or 2.10 per cent, to 2,588.26 and the Nasdaq Composite dropped 174.01 points, or 2.43 per cent, to 6,992.67.
The declines sent the Dow and the S&P 500 down more than 4 per cent and more than 2.75 per cent, respectively, for the year to date.
"There's a whole lot less predictability in the news flow after this week, and I don't think that gave investors a lot of confidence going into the weekend 'long' (stocks)," said Art Hogan, chief market strategist at B. Riley FBR in New York.
Canada's main stock index fell to a five-week low on Friday, led by declines for financial and industrial shares, as domestic data showed hotter-than-expected inflation and fears of a global trade war gripped investors.
The Toronto Stock Exchange's S&P/TSX composite index unofficially closed down 176.19 points, or 1.14 percent, at 15,223.74. Eight of the index's 10 main groups ended lower.
Financial stocks fell 1.6 per cent led by a 3.3-per-cent drop from National Bank of Canada. Toronto-Dominion Bank lost 2.3 per cent to $73.21, while Canadian Imperial Bank of Commerce was down 1.7 per cent to $114.07.
Industrial stocks were down 1.4 per cent. Canadian National Railway Co. finished 2 per cent lower at $91.05, while Ritchie Bros Auctioneers Inc. fell 2.6 per cent to $38.88.
Marijuana producers jumped on Friday, a day after the Senate gave its approval in principle to the Trudeau government's bill to legalize recreational marijuana.
Canopy Growth Corp. rose 4.5 per cent to $33.11, while Aurora Cannabis Inc. was up 5.8 per cent to $10.19.
European stocks fell broadly, with the Euro Stoxx index dropping 0.9 per cent. That followed large declines in Asia, where the Nikkei tumbled 4.5 percent and the Hang Seng index lost 2.5 per cent.
China urged the United States to "pull back from the brink," but investors fear Mr. Trump's tariffs are leading the world's two largest economies into a trade war with potentially dire consequences for the global economy.
China disclosed its own plans on Friday to impose tariffs on up to $3-billion of U.S. imports in retaliation against U.S. tariffs on Chinese steel and aluminum products.
Amid the uncertain global economic climate, investors seeking safer assets jumped into government bonds in Europe and the United States.
Benchmark 10-year U.S. Treasury notes last rose 6/32 in price to yield 2.8117 per cent, from 2.832 percent late on Thursday.
In Europe, benchmark issuer Germany's 10-year bond yields hovered close to 10-week lows struck a day earlier at around 0.52 per cent. While German bond yields recovered in European trading, they suffered their biggest two-week drop since November.
Many investors also turned to the Japanese yen, a currency likely to benefit from a full-fledged trade war.
The currency gained as much as 0.6 per cent against the dollar to 104.635 yen, the first time it has been below 105 since November 2016. Investors later booked profits to leave the yen up 0.1 per cent at 105.19 yen per dollar.
The Swiss franc, another currency bought in times of market uncertainty, rose 0.2 per cent versus the dollar, although it fell against the euro.
The dollar index, tracking it against other major currencies, fell 0.4 per cent.
Crude prices rose on Friday, hitting their highest since late January after the Saudi energy minister said OPEC and allied producers would need to keep coordinating supply cuts into 2019, and as concerns grew over the future of Iranian crude exports.
Brent crude futures jumped $1.54, or 2.2 per cent, to settle at $70.45 a barrel. For the week, Brent was up about 6.4 per cent, its strongest weekly rise since July.
U.S. West Texas Intermediate (WTI) crude futures also had their biggest weekly gain since July, at 5.5 per cent. WTI settled at $65.88 a barrel, up $1.58, or 2.5 per cent.
U.S. hedge funds and other money managers raised their bullish bets on WTI in the week to March 20 by 34,488 contracts to 488,438, the U.S. Commodity Futures Trading Commission (CFTC) said.
"There are a number of bullish things to hang the hat of the rally on this week; be it the inventory report ... or the tariff news, or the heightened tensions between Saudi and Iran," said Matt Smith, director of commodity research at Clipper Data in Louisville, Kentucky.
Mr. Trump's decision to replace national security adviser H.R. McMaster with John Bolton, who is seen as more hawkish on Iran, also supported prices, Smith said.
Global stock markets fell as investors worried about a trade stand-off between the United States and China. Trade jitters could also hit oil markets, but most analysts said other bullish factors outweighed them for now.