Trade war fears sink US stocks more than 2pc

US stocks plunged more than two per cent Friday after President Donald Trump warned of tariffs on an additional $100 billion of Chinese imports, provoking a strong response from Beijing and fanning fears of a full-blown trade war.

Investors were unnerved by the latest broadside from the volatile US president and by China’s strident response, which vowed Beijing would stand firm “until the end at any cost.”

“The market is getting more concerned about the possibility of a trade war between the US and China,” said Tom Cahill, portfolio strategist at Ventura Wealth Management.

“The market does not like uncertainty and right now we have a lot of it.”

The Dow finished down 2.3 per cent at 23,932.76, with all 30 members ending in the red. The S&P 500 and tech-rich Nasdaq indices also lost more than two per cent.

The barbs over trade overshadowed a lacklustre jobs report, which placed US jobs growth at 103,000 in March, well below analyst expectations. Unemployment held steady at 4.1 per cent.

European equity markets also retreated, but not as severely, with Paris, Frankfurt and London falling half a percentage point or less.

Asian stocks mostly receded on Friday. Tokyo finished in the red, losing 0.4 per cent. There were also losses for Seoul and Sydney, while Shanghai was shut.

Hong Kong however outperformed regional peers with a sizeable 1.1-per cent gain, with the market playing catch-up after Thursday’s closure.

Bargaining tactic? -

The more muted response overseas likely reflects skepticism that the harsh trade rhetoric between the US and China will be followed up with concrete action.

Some investors have taken solace from signals that the Trump administration may be taking a harsh line as a bargaining tactic towards deal making with China.

But those hints were absent Friday.

Top White House economic advisor Larry Kudlow, who had repeatedly suggested that US tariffs might not go into effect, reversed himself, and warned Friday that the tariff threat is not a negotiating tactic.

Kudlow said that tariffs were still not a certainty and there were some “back channel” talks going on but “any foreign policy can go wrong.”

US stocks deepened further in the afternoon following an interview with Treasury Secretary Steven Mnuchin and a speech by Federal Reserve Chairman Jerome Powell.

Briefing.com analyst Patrick O’Hare said investors were disappointed by the lack of reassurances from Trump administration officials, including Mnuchin, who told CNBC that the administration hoped to negotiate but acknowledged that a trade war was a possibility.

The Mnuchin interview was a “reminder that things are moving in a contentious direction because there are no negotiations and no one is really backing down on either side on the implementation of tariffs,” O’Hare said.

Fed Chair Powell, meanwhile, signalled that the US central bank still plans to press ahead with additional interest rate hikes in 2018, a stance that also disappointed investors.

“The market might have been starting to contemplate that all the trade volatility might lead the Fed to be a little less aggressive with its policy, and at least for today, the Fed chairman didn’t give any indication that that was going to be the case,” O’Hare said.