Global share rally cools as Trump turns trade heat on Europe

Herbert Lash, Reuters

Posted at Apr 10 2019 08:13 AM

Global share rally cools as Trump turns trade heat on Europe 1
Traders work on the floor at the New York Stock Exchange in New York, US, April 9, 2019. Brendan McDermid, Reuters

NEW YORK -- The dollar fell and the rally in global equities lost steam on Tuesday as a US threat to slap tariffs on hundreds of European goods and a downgrade by the International Monetary Fund in its global economic growth forecasts dimmed the appetite for risk.

The IMF warned that growth could slow further due to trade tensions and a potentially disorderly British exit from the European Union. China, Germany and other major economies might need to take short-term actions to support growth, the IMF said.

US Treasury Secretary Steven Mnuchin told lawmakers the Trump administration is preparing for the possibility of a "hard Brexit."

Asian shares rose to an eight-month high overnight but US and European markets fell after President Donald Trump welcomed the World Trade Organization's finding that Europe's subsidies to planemaker Airbus had hurt the United States.

The US Trade Representative on Monday proposed a range of EU products, from large commercial aircraft and parts to dairy products and wine, to target as retaliation for subsidies given to Airbus.

Equities fell in Europe and on Wall Street, snapping an eight-day rally for the S&P 500, after an EU official said the European trade bloc was beginning preparations to retaliate over Boeing subsidies.

Uncertainty over tariffs and trade between the United States and China have dented business confidence and led corporate investment to dry up, said Hank Smith, co-chief investment officer at The Haverford Trust Co in Radnor, Pennsylvania.

"Business investment is now being put on hold because of the uncertainty around tariffs," he said.

A weak US-China trade deal probably is priced into the market, but a very good trade deal is not, Smith said.

"Even if it's not so good, it is going to have a positive effect on the economy because it is going to remove an uncertainty," he said.

MSCI's all-country world index, a gauge of stock performance in 47 countries, fell 0.35 percent. The pan-European STOXX 600 index closed down 0.47 percent and the FTSEurofirst 300 index of leading regional shares fell 0.41 percent.

Airbus said it saw no legal basis for the US move toward imposing tariffs on its aircraft and warned of deepening trade tensions.

Airbus shares fell 1.86 percent and many of its key suppliers lost between 0.7 percent and 1.2 percent. Boeing shares fell 1.46 percent ahead of its aircraft delivery and order numbers for March.

On Wall Street, the Dow Jones Industrial Average fell 190.44 points, or 0.72 percent, to 26,150.58. The S&P 500 lost 17.57 points, or 0.61 percent, to 2,878.20 and the Nasdaq Composite dropped 44.61 points, or 0.56 percent, to 7,909.278.

The yen rose as traders favored the safe-haven currency in the wake of the US proposal for tariffs on European goods.

The dollar index fell 0.04 percent, with the euro up 0.04 percent to $1.1263. The Japanese yen strengthened 0.32 percent versus the greenback at 111.14 per dollar.

US Treasury yields slid, pressured by concerns about the IMF's global economic outlook for 2019 as well as a round of headlines on Britain's messy departure from the EU.

In Europe, government borrowing costs in southern countries hit fresh lows, pushed down by hopes that this week's European Central Bank meeting will reinforce expectations for supportive policy measures in the months ahead.

Portugal's 10-year government bond yield fell to 1.195 percent, a 25-year low.

Benchmark U.S. 10-year Treasury notes rose 5/32 in price to push yields down to 2.4989 percent.

Oil fell from a five-month high above $71 a barrel after Russia signaled a possible easing of a supply-cutting deal with the Organization of the Petroleum Exporting Countries.

Brent, the global benchmark, rose to $71.34 a barrel, the highest since November, but later settled down 49 cents at $70.61 per barrel. U.S. crude also hit a November high of $64.79, but settled down 42 cents at $63.98.

Gold rose to its highest in more than a week as the dollar and equities weakened.

US gold futures settled 0.5% higher at $1,308.3 an ounce.