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Fresh Trade Threat Drags on Global Stocks

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07/11/2018 | 01:25pm CEST

By Ben St. Clair
-- U.S. proposes new tariffs on $200 billion of Chinese goods
-- Treasury yields decline, dollar edges up
-- Crude futures, copper fall

Stocks and commodity prices fell sharply Wednesday as concerns over escalating trade tensions threatened to erase the week's gains.

Futures pointed to a 0.8% opening loss for the S&P 500 while the Stoxx Europe 600 was down 1.2% midday, pushed lower by shares of mining, auto and oil-and-gas companies. Asian markets closed down with Shanghai notching some of the biggest losses.

The Trump administration said Tuesday it would assess 10% tariffs on an additional $200 billion of Chinese goods. The tariffs, which wouldn't come into effect for at least two months, cover a variety of Chinese goods, including tuna, salmon and other fish, luggage, tires, dog leashes, handbags, baseball gloves, furniture, apparel and mattresses.

China called the move "totally unacceptable" in a statement attributed to an unnamed ministry spokesman and vowed to roll out unspecified countermeasures.

Shares of commodity-linked companies were among the hardest hit on Wednesday, as commodity prices were also pressured by a strengthening dollar.

Shares of mining companies Glencore and Rio Tinto fell sharply in Europe. Trade concerns have continued to weigh down commodities prices with copper futures down 2.8% to around one-year lows. The metal has been hit especially hard amid the escalating trade rhetoric and is seen by many analysts as a barometer for global economic health.

The "step by step escalation in actions" on trade raises concerns for global growth, said Kristin Magnusson Bernard, global head of macroeconomic research at Nordea Bank. The product-specific tariffs may lead to price increases for U.S. consumers, and companies may cut back investment amid increased uncertainty and possible supply chain disruptions, she said.

"You're going to start seeing effects in inflation most likely," Ms. Magnusson Bernard said. If rising prices lead to rate increases from the Federal Reserve, U.S. borrowers may feel strained and cut back on consumption as a result, she said.

Shares of oil-and-gas companies also fell sharply in Europe as Brent crude, the global benchmark, reversed course from gains earlier in the week, falling 2.3% to $77.07 a barrel. Prices came under pressure after Libya indicated it would resume export activities at its eastern ports.

Shares of BP were down 2.5% and Royal Dutch Shell dropped 1.9%

Less economically sensitive stocks in Europe, including food and beverage, telecom and utilities, fared better than banks and auto companies, which have fallen sharply as trade tensions have appeared to escalate.

The European auto sector was down 2% Wednesday, bringing its losses this year close to 10%.

In Asia, Hong Kong's Hang Seng dropped 1.3% amid losses in tech companies and China's Shanghai Composite Index fell 1.8%, snapping a three-day winning streak. Japan's Nikkei fell 1.2% and South Korea's Kospi was down 0.6%.

Market participants had been tentatively optimistic on trade earlier in the week, driving stocks higher as they looked toward what are expected to be positive second-quarter earnings reports.

Analysts expect earnings from S&P 500 companies to grow roughly 20% in the second quarter from the year-earlier period, according to FactSet.

If stocks decline, it won't be due to earnings, Bob Phillips, managing principal at Spectrum Management Group, said. Instead, the "trade war getting out of hand" would depress stocks, Mr. Phillips said.

Meanwhile, U.S. President Donald Trump reiterated criticism on Wednesday of what he sees as insufficient military spending from European allies.

As stocks declined, yields on 10-year Treasurys fell to 2.832% from 2.873% on Tuesday. Yields fall as prices rise.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, was up 0.4%.

Bob Davis contributed to this article.

Stocks mentioned in the article
ChangeLast1st jan.
CHINA-SHANGHAI COMP 1.82% 2699.95 End-of-day quote.-18.53%
DJ INDUSTRIAL 0.71% 26246.96 Delayed Quote.6.18%
HANG SENG 1.20% 27417.71 Real-time Quote.-9.49%
KOSPI COMPOSITE INDEX -0.03% 2308.1 Real-time Quote.-6.18%
NASDAQ 100 0.80% 7494.3994 Delayed Quote.16.23%
NASDAQ COMP. 0.76% 7956.1068 Delayed Quote.14.38%
NIKKEI 225 1.08% 23672.52 Real-time Quote.1.45%
S&P 500 0.54% 2904.31 Real-time Quote.8.05%
US DOLLAR INDEX 0.15% 94.64 End-of-day quote.3.03%
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