Stocks and oil prices fell sharply on Friday while traditional safe havens rose after U.S. President Donald Trump threatened to further escalate his trade war with China “this afternoon,” following a new round of retaliatory tariffs from Beijing.
Earlier on Friday China’s Commerce Ministry said in a statement it would impose tariffs on about $75 billion in imports from the United States including some agricultural products, crude oil and small aircraft.
Trump responded mid-morning in a series of tweets, writing that “American companies are hereby ordered to immediately start looking for an alternative to China.”
Trump cannot force U.S. companies to abandon China and he gave no detail on how he might proceed with any such order. But his series of tweets was seen as a harbinger for even further escalation of the trade war.
“Clearly when you look at U.S. yields and the dollar’s reaction, there are concerns that these latest comments from Trump on China will push the U.S. into recession,” said Marvin Loh, senior global markets strategist at State Street.
Stocks that benefit during economic expansions fell the most, also hinting at recession concerns.
“There is a lot of worry here. I would say what (Trump) is tweeting is disconcerting. It’s a fair reaction from the markets. I don’t think anyone thought we’d get to this level,” said Michael O’Rourke, chief market strategist at JonesTrading.
The Dow Jones Industrial Average fell 622.19 points, or 2.37 per cent, to 25,630.05, the S&P 500 lost 75.7 points, or 2.59 per cent, to 2,847.25 and the Nasdaq Composite dropped 239.62 points, or 3 per cent, to 7,751.77.
In Toronto, the S&P/TSX Composite index was unofficially down 215.88 points, or 1.33 per cent, at 16,037.58.
Ten of the index’s 11 major sectors were lower, led by a 3.2-per-cent drop in the energy sector.
The financials sector slipped 1.5 per cent. The industrials sector fell 2.3 per cent.
Limiting losses on the main index was a 1.8-per-cent rise in the materials sector, which includes precious and base metals miners, as China’s latest tariffs blow spurred safe-haven buying in gold.
The pan-European STOXX 600 index turned sharply lower after Trump’s tweets, dropping 1 per cent in the last half hour of trading to close down 0.78 per cent, while MSCI’s gauge of stocks across the globe dropped 1.29 per cent.
Emerging market stocks lost 0.48 per cent and U.S. dollar-denominated Nikkei futures fell 1.8 per cent.
Oil prices fell after China’s retaliatory tariffs announcement highlighted concern the trade dispute between the world’s two largest economies could slow global growth or even trigger a recession.
Trump’s tweets made matters worse.
“We still view the U.S.-Chinese trade standoff as a major bearish consideration that will likely be requiring additional downward oil demand adjustments as this year proceeds,” said Jim Ritterbusch, president of Ritterbusch and Associates.
U.S. crude fell 2.17 per cent to $54.15 per barrel and Brent was last at $59.33, down 0.98 per cent on the day.
Trump’s comments came after Federal Reserve Chair Jerome Powell said the U.S. central bank will “act as appropriate” to keep the economic expansion on track, but noted rising risks.
Powell’s remarks had somewhat given markets relief after the overnight announcement from Beijing. Trump’s tweeted response to the speech labeled Powell an “enemy.”
The two-year/10-year yield curve inverted last week for the first time since 2007, a signal that a U.S. recession is likely in one to two years. The curve has traded in and out of inversion over the past three days.
U.S. Treasury yields fell, with 10-year notes last up 25/32 in price to yield 1.5266 per cent, from 1.61 per cent late on Thursday.
The two-year/10-year yield curve tripped to negative territory early in the session and for a third consecutive day.
The U.S. dollar fell after Powell’s comments and dropped further after Trump’s tweets.
The dollar index fell 0.54 per cent, with the euro up 0.6 per cent to $1.1145.
The Japanese yen strengthened 1.06 per cent versus the greenback at 105.33 per dollar, while sterling was last trading at $1.2286, up 0.29 per cent on the day.
Spot gold added 2.0 per cent to $1,528.05 an ounce.