U.S. President Donald Trump sent financial markets reeling on Thursday when he announced an additional 10 per cent tariff on $300-billion in Chinese products would take effect next month.
A more than 1-per-cent gain in U.S. stocks evaporated within minutes, U.S. crude fell more than 8 per cent and emerging market stocks tumbled to a six-week low.
The moves added to already heightened volatility in markets a day after the Federal Reserve cut interest rates for the first time in over a decade, in what was dubbed a “hawkish rate cut.”
After the Fed lowered its benchmark rate by 25 basis points on Wednesday, Chairman Jerome Powell said that the central bank’s first rate cut in over a decade was “not the beginning of a long series of rate cuts.”
Trump said he was disappointed in Powell as the U.S. president had called for a more dovish stance at the Fed, but his tariff announcement had the effect he wanted on the outlook for interest rates. Traders are now pricing in two more interest rate cuts by year’s end, and are increasing bets the Fed will need to ease policy further next year to offset risks from the escalating trade war.
“One thing that’s interesting is that after the Fed decision yesterday Trump tweeted in fairly short order his disapproval of it, and so he went outside of the lines to start a trade war,” said Mazen Issa, senior foreign exchange strategist at TD Securities in New York.
Based on the latest available data, the Dow Jones Industrial Average fell 280.85 points, or 1.05 per cent, to 26,583.42, the S&P 500 lost 26.82 points, or 0.90 per cent, to 2,953.56 and the Nasdaq Composite dropped 64.30 points, or 0.79 per cent, to 8,111.12.
Canada’s main stock index rose on Thursday as upbeat earnings from companies including Shopify countered losses in energy shares on the back of lower crude prices.
Shopify Inc. rose 7.7 per cent after the e-commerce company raised its full-year revenue forecast and reported a quarterly profit that handily beat Wall Street estimates, as the investments to attract customers to its product offerings paid off.
The energy sector, which accounts for nearly a fifth of the index’s weight, dropped 2.2 per cent, the most among the major Canadian sectors trading lower.
A rising dollar makes oil more expensive for holders of other currencies and tends to weigh on commodities priced in the U.S. currency. The dollar hit a two-year peak against the euro on Thursday after the Fed decision.
The Toronto Stock Exchange’s S&P/TSX composite index was down 29.52 points, or 0.18 per cent, at 16,377.04.
The materials sector, which includes precious and base metals miners and fertilizer companies, gained 1.7 per cent.
Thomson Reuters Corp.’s shares rose 2.6 per cent after the news and information provider raised its sales and core profit outlook for 2019 and 2020.
MSCI’s gauge of stocks across the globe shed 0.55 percent.
Emerging market stocks lost 1.38 per cent. Futures in Japan’s Nikkei lost 1.59 percent.
Oil prices plummeted more than 7 per cent on Thursday to the lowest level in about seven weeks, after U.S. President Donald Trump said he would impose an additional 10 per cent tariff on $300 billion worth of Chinese imports starting Sept. 1.
A prolonged trade war between the world’s two largest economies has triggered worries about oil demand.
Brent crude fell $4.55, or 6.99 per cent, to settle at $60.50 a barrel, having dropped as low as $60.02, the lowest since June 13. The international benchmark’s decline on Thursday was its biggest daily percentage drop since Febuary 2016.
U.S. West Texas Intermediate (WTI) crude ended the session down $4.63, or 7.9 per cent, at $53.95 after sinking to a low of $53.59, the lowest level since June 19. It was the biggest percentage decline since February 2015.
“Oil prices have fallen considerably today, done in by a one-two punch of the underwhelming Federal Reserve easing moves and the announcement by President Trump that more tariffs will be placed on imported Chinese goods,” said John Kilduff, partner at Again Capital Management.
U.S. Treasury yields across all maturities fell sharply, with the benchmark 10-year note hitting its lowest since November 2016.
The 10-year note last rose 33/32 in price to yield 1.9072 percent, from 2.021 percent late on Wednesday.
Reuters