Stocks and commodities hit the skids on Friday in the wake of escalating trade tensions between the US and China, while gold faced its biggest one-day drop since 2016 on a resurgent dollar.
Beijing said it would retaliate and impose its own duties on US imports after the Trump administration on Friday revealed new tariffs on $50bn of Chinese imports.
The S&P 500 was down 0.4 per cent. Energy, down 1.8 per cent, basic materials, down 1.2 per cent, and industrials, down 0.7 per cent, were the worst off. Telecommunications and consumer staples, both up 0.5 per cent, and utilities, up 0.1 per cent, were the only sectors in the black as investors favoured defensive names.
The Dow Jones Industrial Average sank 0.9 per cent, weighed down by declines for big industrials like Boeing and Caterpillar, which are seen by many investors as at risk of being caught up in a full-blown trade war between the US and its allies. Boeing was down 2.1 per cent and Cat was off 2.9 per cent.
Other stocks seen as at risk in a trade war, particularly food producers, were cautiously higher on the whole.
The Nasdaq Composite retreated 0.3 per cent from Thursday’s record closing high.
Commodities were under pressure for numerous reasons.
Soft commodities took a hit in the wake of the tariff developments. Cotton was down 3.2 per cent, while wheat had fought back from earlier declines to be 0.4 per cent lower. Soyabeans, which China imports from the US in huge quantities and on which Beijing has threatened to impose import duties, were down 1.2 per cent and heading for a steep weekly decline.
Gold was down 1.9 per cent at $1,277.57 a troy ounce and facing its biggest one-day drop since November 2016. The move comes after the dollar on Thursday hit a seven-month high following the Federal Reserve‘s flagging a quicker pace of interest rate rises this year. The European Central Bank also hinted yesterday that any rise in interest rates on the Continent would not occur before the end of summer 2019.
Gold and the dollar typically experience an inverse relationship, with international investors finding it more expensive to buy gold, which is priced in US dollars, when the greenback appreciates.
The DXY index, which tracks the greenback against a basket of global currencies, was fractionally higher at 94.792. It had risen above 95 earlier in the day to its highest level since November.
Treasuries were firmer, but had lost a little bit of steam from earlier in the morning. The yield on the benchmark 10-year US Treasury was down 2.7 basis points at 2.9187 per cent.