Stocks Sink, Bonds Gain as U.S.-China Feud Deepens: Markets Wrap

(Bloomberg) -- U.S. stocks slumped and Treasuries rallied as the trade dispute between the world’s two largest economies deepened. The dollar fell.

After the close of regular trading, President Donald Trump confirmed he’ll boost tariffs on Chinese imports in response to Beijing’s retaliation. The SPDR S&P 500 ETF Trust was little changed following the announcement. Prospects for heightened tension rattled markets Friday, overshadowing speculation that the Federal Reserve will cut rates after Chairman Jerome Powell’s remarks. Energy and tech stocks led losses in the S&P 500 Index, and the Dow Jones Industrial Average tumbled 623 points as only Boeing Co. rose among the gauge’s 30 blue-chip companies. The Nasdaq-100 Index plunged more than 3%.

The bond market’s U.S. recession indicator -- the spread between 2- and 10-year rates -- flirted with inversion again. Elsewhere in the yield curve, three-month and 10-year Treasuries hit the most-inverted level since March 2007. The greenback dropped as Trump said that “we have a very strong dollar and a very weak Fed,” fueling chatter about a possible move to weaken the currency. Oil sank, while gold surged.

Read: ‘Much Tougher to Walk Back’: Investors on Trump-Tweet Stock Rout

The trade war escalation rekindled concerns about the outlook for global growth that’s already looking shaky. The announcement comes as leaders from the Group of Seven nations prepare to meet in France and central bankers gather in Jackson Hole. Trump tweeted that the Fed chairman could be a greater “enemy” of the U.S. than Chinese President Xi Jinping. “As usual, the Fed did NOTHING!,” he wrote.

“Trade trumps Jackson Hole,” said John Augustine, chief investment officer at Huntington Private Bank. “Fed Chair Powell was fairly dovish today and markets were reacting to that positively, but when the trade tweet came out, that obviously changed market dynamics.”

The plunge in the S&P 500 destroyed what was shaping up to be a rally for the week. There have been just four other weeks during this bull market when a Friday rout erased a gain of more than 1% through Thursday, data compiled by SentimenTrader show. This had never occurred from 1950 to mid-1980s, and since then, it’s happened just 15 other times before this week. U.S. stocks posted their fourth straight week of losses -- the longest streak since May.

Read: Fed Rate-Cut Odds Jump as Powell and Then Trump Roil Markets

“It’s all about trade, it’s all about global growth,” Scott Wren, senior global equity strategist for Wells Fargo Investment Institute, told Bloomberg TV. “Right now, people aren’t all that worried about the Fed. They’re a lot more worried about global growth and these trade negotiations.”

Here are the main moves in markets:

Stocks

• The S&P 500 sank 2.6% to 2,847.11.
• The CBOE Volatility Index surged 19%.
• The Stoxx Europe 600 Index declined 0.8%.
• The MSCI Asia Pacific Index climbed 0.4%.

Currencies

• The Bloomberg Dollar Spot Index sank 0.35%.
• The euro jumped 0.6% to $1.1144.
• The Japanese yen appreciated 1% to 105.39 per dollar.

Bonds

• The yield on 10-year Treasuries fell eight basis points to 1.54%.
• Germany’s 10-year yield decreased three basis points to -0.68%.
• Britain’s 10-year yield declined four basis points to 0.481%.

Commodities

• The Bloomberg Commodity Index decreased 0.5%.
• West Texas Intermediate crude fell 2.1% to $54.17 a barrel.
• Gold surged 1.9% to $1,537.60 an ounce.

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