Global stocks were lower on Monday as investors eyed an escalating trade dispute between the United States and China while oil prices rose on bets that an OPEC production increase would be smaller than expected.
A jump in energy shares helped to limit losses in Wall Street’s major indexes, which had pared losses by late afternoon and long-dated Treasury yields turned positive.
U.S. President Donald Trump on Friday announced tariffs on $50-billion of Chinese imports, starting on July 6.
China said it would retaliate immediately by suspending previous trade agreements with Mr. Trump’s administration and slapping duties on American exports, including crude oil.
“The biggest thing hanging over markets is trade and the back and forth between the U.S. and China,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
“But, if people thought this was really going to be a trade war stocks would be down a lot more. The fact they’re down so little means that people think what the Trump administration is doing is part of their negotiating strategy.”
Canada’s main stock index rose on Monday, boosted by the energy sector which climbed higher after a gain in oil prices.
The Toronto Stock Exchange’s S&P/TSX Composite Index was unofficially up 69.21 points, or 0.42 per cent, at 16,383.63.
The Canadian energy sector climbed 1.4 per cent, including a 3.3-per-cent increase from Cenovus Energy Inc. and a 2.3-per-cent jump by Canadian Natural Resources Ltd.
Eight of the index’s 11 major sectors were higher, while the healthcare sector fell 2.2 per cent.
Shares of Valeant Pharmaceuticals, with a 12.4-per-cent decline, was the biggest drag to the main index. U.S. health regulators declined to approve the drugmaker’s lotion to treat plaque psoriasis, citing questions related to certain data.
In New York, the Dow Jones Industrial Average fell 101.91 points, or 0.41 per cent, to 24,988.57, the S&P 500 lost 5.79 points, or 0.21 per cent, to 2,773.87 and the Nasdaq Composite added 0.65 point, or 0.01 per cent, to 7,747.03.
The energy sector was the S&P 500’s most positive boost with a 1.1-per-cent increase as crude oil futures reversed earlier losses to settle higher.
U.S. crude oil rose 79 cents a barrel to settle at $65.85. The contract traded at a two-month low of $63.59 early in the session. Brent crude jumped $1.90 to $75.34 a barrel.
U.S. crude’s discount to Brent widened to as much as $9.75 a barrel, after narrowing on Friday.
The Organization of the Petroleum Exporting Countries, which is de facto led by Saudi Arabia, is due to meet in Vienna on Friday to decide production policy. OPEC and some allies including Russia have been restricting output since the start of 2017.
Bob Yawger, director of energy futures at Mizuho in New York said indications from OPEC members and other large producers on the scale of potential production increases would drive the market this week.
“Volatility is going to be pretty high this week,” Mr. Yawger said.
The pan-European FTSEurofirst 300 index lost 0.80 per cent and MSCI’s gauge of stocks across the globe shed 0.51 per cent.
On top of trade, a potentially destabilizing spilt in German Chancellor Angela Merkel’s governing coalition over a migration plan weighed on the euro and put further pressure on European shares.
Germany’s DAX fell 1.4 per cent while France’s CAC 40 declined 0.9 per cent.
U.S. 10- and 30-year Treasury yields turned positive in the late morning after falling for two consecutive sessions.
Benchmark 10-year notes last fell 1/32 in price to yield 2.9278 per cent, from 2.924 percent late on Friday.
The 30-year bond last fell 7/32 in price to yield 3.0568 per cent, from 3.047 per cent late on Friday.
The immediate fallout from the trade dispute was limited in currencies although the escalation seemed to encourage some risk aversion as the safe-haven Japanese yen recovered from three-week lows against the dollar.
The dollar index, which measures the greenback against a basket of major currencies, fell 0.02 per cent, while the euro was up 0.09 per cent to $1.1617.
“It’s tough to say whether it will spiral further because it’s so fluid. It does weigh on sentiment at times,” said Eric Viloria, currency strategist at Wells Fargo Securities in New York. “Our base case is that there won’t be a trade war.”
However, the yuan fell to 6.4600 per dollar, its weakest in five months in the offshore market.
The Japanese yen strengthened 0.15 per cent, trading at 110.51 per dollar.
Reuters