Stocks skid lower as US-China trade spat resurfaces; jobs report disappoints

Javier Stokes
April 7, 2018

Suddenly the trade "not a war" was back in the headlines, and stocks were back in the red.

Friday's losses wiped out gains for the week, and the Dow sank back into correction territory - 10 percent below its all-time closing high in January. But late Thursday, President Trump ordered the U.S. Trade Representative to consider placing tariffs on $100 billion in duties on Chinese imports. The Russell 2000 index of smaller-company stocks dipped 29.63 points, or 1.9 per cent, to 1,513.30.

USA stocks opened lower on Friday, amid signs that trade tensions between the US and China were escalating, with multiple retaliations between the two countries, and after a weaker-than-expected read on the labor market.

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

Mullarkey said the markets may tolerate some tit-for-tat, given the strong fundamentals.

"We've gone from Larry Kudlow trying to calm the markets down to the administration saying, 'Hey, ignore the markets, '" Hogan said.

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.

"If the United States side disregards opposition from China and the global community and insists on carrying out unilateralism and trade protectionism, the Chinese side will take them on until the end at any cost", the Commerce Ministry said in a statement.

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The targets for the sanctions will be taken from a classified annex to the report , the official said. Treasury Department recently released a list of individuals who may face countermeasures.

The market is fragile as China and the United States exchange threats on tariffs.

The sell-off accelerated in the final two hours of trading after Fed Chief Jerome Powell indicated the central bank would continue hiking rates this year.

Investors also digested a weaker-than-expected jobs report that might give the Federal Reserve more time to decide whether to raise interest rates four times instead of scheduled three.

"Markets are forced to confront the idea that rates are going up and the stock market is not going to derail that process", McMillan said.

Wages grew 2.7 percent in March compared with a year earlier, in line with expectations. In February, an unexpected jump in wage growth set off inflation alarm bells and caused stocks to plunge.

With administration officials sounding conciliatory one day and more hostile the next and the president always quick to fire off another tweet, investors simply don't know what the US wants to achieve, said Katie Nixon, chief investment officer for Northern Trust Wealth Management.

The more muted response overseas likely reflects skepticism that the harsh trade rhetoric between the USA and China will be followed up with concrete action. The yield on the 10-year Treasury fell to 2.78 percent from 2.83 percent.

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