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Stocks around the world slid on Monday, along with bond yields, after U.S. President Donald Trump threatened to raise tariffs on China, triggering an investor exodus from risky assets.

But assets such as oil and currencies changed direction as the day wore on as investors were not convinced Trump would follow through with a threat made on Sunday to raise tariffs on $200-billion worth of Chinese goods this week.

All the same, investors reduced their risk exposure, with U.S. Treasury yields lower as investors favored low-risk government bonds over stocks.

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Oil futures edged higher in volatile trade as rising tensions between the United States and Iran buoyed prices, which earlier touched a one-month low due to the tweets from Trump.

In U.S. equities, the three major indexes fell after declines in Europe and China, where the Shanghai SE Composite had its biggest one-day percentage drop since February 2016.

U.S. indexes, however, pared their losses slightly by mid-afternoon.

“The news gave investors a chance to take profits off the table. Markets are comfortable with the idea that Trump is using this as a negotiation tactic to get a trade deal done,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Whether or not China will be able to meet the demands of the administration, that is questionable, but I think a trade agreement is on its way.”

Fear about trade-war escalation was also balanced by a statement from China’s foreign ministry on Monday that a delegation was still preparing to go to United States for trade talks.

“That’s what’s keeping markets from moving down further. People are realizing that if talks are still continuing there’s a chance that this escalation can once again de-escalate,” said Mona Mahajan, U.S. investment strategist, Allianz Global Investors, New York.

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The Dow Jones Industrial Average fell 66.47 points, or 0.25 per cent, to 26,438.48, the S&P 500 lost 13.17 points, or 0.45 per cent, to 2,932.47 and the Nasdaq Composite dropped 40.71 points, or 0.5 per cent, to 8,123.29

Canada’s main stock index on Monday finished flat on Monday, erasing early losses.

The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 0.97 points, or 0.01 per cent, at 16,493.46.

Canada is leaning on the United States to help settle the dispute with China, which has started to block imports of vital Canadian commodities amid a dispute over a detained Huawei executive.

The Canadian dollar weakened to a 10-day low against its U.S. counterpart and oil prices took a hit from the ongoing worries about trade.

Five of the 11 major sectors were lower, with materials sector falling 0.7 per cent.

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The heavyweight energy sector finished slightly higher, while marijuana stocks pushed the health care sector up 2.1 per cent.

The largest percentage gainers on the TSX included Air Canada, which jumped 4.9 per cent after reporting a surprise quarterly adjusted profit.

The pan-European STOXX 600 index lost 0.88 per cent and MSCI’s gauge of stocks across the globe shed 0.84 per cent. Japanese and London markets were both closed for holidays.

Benchmark 10-year Treasury notes last rose 11/32 in price to yield 2.4926 per cent, from 2.53 per cent late on Friday.

In currency trading, the U.S. dollar was down very slightly after firming earlier in the session against most major currencies while investors turned to safe-haven currencies after the Trump tweets.

The dollar index fell 0.02 per cent, with the euro up 0.04 per cent to $1.1204.

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The Japanese yen weakened 0.28 per cent versus the greenback at 110.86 per dollar.

Brent crude futures rose 39 cents to settle at $71.24 a barrel. The global benchmark earlier sank to $68.79 a barrel, its lowest since April 2.

U.S. West Texas Intermediate (WTI) crude futures rose 31 cents to settle at $62.25 a barrel. WTI’s session low was $60.04 a barrel, the weakest since March 29.

“When you have a panic investors sell everything. After that the market discerns which ones deserve to be down. We’re continuing to put pressure on Iran and that’s continuing to put supply out of the Middle East under pressure,” said Shawn Hackett, president at Hackett Financial Advisors in Boca Raton, Fla.

“Because of the reduction in supply out of Iran the U.S.-China trade issue isn’t enough to overcome that bullish factor.”

Reuters

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