Trade-war concerns flatten bond yields, roil global stock markets
NEW YORK (Reuters) – Simmering fears of a global trade war on Wednesday overshadowed robust data from China and kept government bond yields low in the United States and Europe, with US stocks sinking into the red amid a drop in industrial shares.
US President Donald Trump on Tuesday fired Secretary of State Rex Tillerson, seen as a free-trade proponent, replacing him with the more hawkish former Central Intelligence Agency director Mike Pompeo.
Later on Tuesday, Reuters reported that the US was seeking to impose tariffs on up to $60 billion of Chinese imports. The news contributed to a continued flattening on Wednesday of the US yield curve, a move also aided by a third consecutive monthly decrease in retailsales data.
The spread between fiveyear notes and 30-year bonds, an indicator of the shape of the yield curve, lowered to 44.9 basis points on Wednesday, 3 basis points below its last close.
Benchmark 10-year notes last rose 11/32 in price to yield 2.8079%, from 2.848% late on Tuesday.
In Europe, high-rated government bond yields edged higher but remained near recent lows. German 10-year government bond yields seesawed in midday trades, falling to a one-and-a-halfmonth low.
Positive news from China spurred higher openings on Wall Street, but the main stock indexes could not weather political fears as trading wore on.
China reported industrial output expanding at a surprisingly faster pace at the start of the year. Fixed-asset investment also beat forecasts, while retail sales improved.
That came on the heels of consumer price data on Tuesday that pointed to annual US core inflation steady at 1.8%, cementing investors’ expectations that the Federal Reserve would not raise rates more than three times in 2018.
But dips in industrial stocks, including a 4.4% drop in shares of Boeing, sent US stocks reeling in morning trading.
The Dow Jones Industrial Average fell 240.62 points, or 0.96%, to 24,766.41, the S&P 500 lost 11.3 points, or 0.41%, to 2,754.01, and the Nasdaq Composite dropped 20.44 points, or 0.27%, to 7,490.58.
The pan-European FTSEurofirst 300 index lost 0.10%, and MSCI’s gauge of stocks across the globe shed 0.39%.
Emerging-market stocks lost 0.49%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.34% lower, while Japan’s Nikkei lost 0.87%.
The Chinese data spurred an early spike for oil, before prices dropped later.
US crude fell 0.36% to $60.49 per barrel, and Brent was last at $64.50, down 0.22% on the day.
In currencies, the dollar index rose 0.18%, with the euro down 0.26% to $1.2357.
The Japanese yen strengthened 0.38% to 106.17 per dollar, while sterling was last trading at $1.3928, down 0.22% on the day.