Stocks and oil fall, yen rallies as Trump threatens to further escalate China trade war

NEW YORK (Reuters) - Stocks and oil prices fell sharply on Friday while traditional safe havens rose after US 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 US 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 US 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 .DJI fell 547.71 points, or 2.09%, to 25,704.53, the S&P 500 .SPX lost 65.23 points, or 2.23%, to 2,857.72 and the Nasdaq Composite .IXIC dropped 215.03 points, or 2.69%, to 7,776.36. The pan-European STOXX 600 index turned sharply lower after Trump’s tweets, dropping 1% in the last half hour of trading to close down 0.78%, while MSCI’s gauge of stocks across the globe .MIWD00000PUS dropped 1.29%. Emerging market stocks lost 0.48% and US dollar-denominated Nikkei futures NKc1 fell 1.8%.

Oil, yields fall

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 US-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 CLc1 fell 2.17% to $54.15 per barrel and Brent LCOc1 was last at $59.33, down 0.98% on the day. Trump’s comments came after Federal Reserve Chair Jerome Powell said the US 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 labelled Powell an “enemy.” The two-year/10-year yield curve inverted last week for the first time since 2007, a signal that a US recession is likely in one to two years. The curve has traded in and out of inversion over the past three days. US Treasury yields fell, with 10-year notes US10YT=RR last up 25/32 in price to yield 1.5266%, from 1.61% 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 US dollar fell after Powell’s comments and dropped further after Trump’s tweets. The dollar index .DXY fell 0.54%, with the euro EUR= up 0.6% to $1.1145. The Japanese yen strengthened 1.06% versus the greenback at 105.33 per dollar, while sterling GBP= was last trading at $1.2286, up 0.29% on the day. Spot gold XAU= added 2.0% to $1,528.05 an ounce.