Stock markets fell on Friday after U.S. President Donald Trump’s threat to impose an extra $100-billion in tariffs on China exacerbated fears of a more serious trade dispute, while the dollar paused ahead of crucial U.S. payrolls data.
European shares followed their Asian counterparts into the red but the falls were limited, and the broader ups and downs for markets this week suggest investors are not yet convinced the row will escalate into a full-blown trade war that threatens global economic growth.
Britain’s FTSE 100 dropped 0.3 per cent while the German Dax was down 0.56 per cent and France’s CAC 40 0.41 per cent.
The MSCI World Index slipped 0.15 per cent while S&P 500 E-mini futures were down 1 per cent, pointing to a lower start for Wall Street when it opens.
In Trump’s latest salvo, he said late on Thursday that he had instructed U.S. trade officials to consider $100-billion in additional tariffs on China. Beijing warned it would fight back “at any cost” with fresh measures to safeguard its interests.
“Any escalation in the trade war rhetoric would be more negative for China than the U.S. given the former’s relative dependency on trade but for now, the markets are focused on the payrolls data,” said Richard Falkenhall, a senior currency strategist at SEB in Stockholm.
Friday’s U.S. non-farm payrolls report could determine the pace of future Federal Reserve interest rate rises and the dollar’s direction.
Fed chairman Jerome Powell is also speaking later on Friday and investors will be looking for any signs that rates could rise more than the expected three hikes priced in for this year.
The U.S. March employment report is expected to show non-farm payroll growth of 193,000 jobs versus 313,000 the prior month, according to the latest Thomson Reuters poll of economists.
Average hourly earnings are expected to have risen 0.2 per cent last month after edging up 0.1 per cent in February. The gain would lift the annual increase in average hourly earnings to 2.7 per cent from 2.6 per cent in February.
“Away from the political noise, the reality is that the fundamental backdrop for markets hasn’t changed – global economic growth is broadly synchronized and interest rates are slowly normalizing,” wrote Kerry Craig, Melbourne-based global market strategist at J.P. Morgan Asset Management.
U.S. DOLLAR UP THIS WEEK
The dollar, which has tended to fall in recent weeks when trade tensions have risen, rose 0.1 per cent against a basket of major currencies in early European trading, bringing week-to-date gains to 0.6 per cent.
Against the yen, which as a safe haven currency tends to be among the most sensitive to global economic uncertainty, the dollar was flat. So far this week the dollar is up 1 per cent versus the Japanese currency, hitting its best level since late February, despite growing U.S.-China trade tensions.
Some Asian currencies showed signs of investor nervousness, however.
The Chinese yuan fell another 0.4 per cent versus the dollar , bringing week-to-date losses to 0.8 per cent. The Korean won, heavily exposed to global trade, also fell.
Treasury debt prices gained and yields declined as investors sought the safety of government bonds. Euro zone government bond yields also dipped as the trade dispute between the United States and China flared.
The 10-year Treasury note yield fell 1.1 basis points to 2.821 per cent, pulling back from Thursday’s nine-day high of 2.838 per cent. Treasury yields had fallen further in Asian trading but the European open brought some calmness to markets.
The yield on 10-year German government debt, the euro zone benchmark, slid 2 basis points in early trade to a shade below 0.51 per cent, erasing much of Thursday’s rise.
Crude oil prices fell after Trump’s latest tariff proposal. O/R U.S. crude slipped 0.5 per cent to $63.22 a barrel and Brent was down 0.45 per cent at $68 a barrel.