Stocks Bounce Back From Trade Tremors, Bonds Fall: Markets Wrap

(Bloomberg) -- U.S. equities stormed back from deep losses sparked by trade tensions as investors speculated the Trump administration won’t enact the most protectionist proposals and risk derailing economic growth.

The S&P 500 Index saw the biggest two-day gain in five weeks as representatives from China and the Trump administration left the door open for a negotiated solution to avoid tariff proposals that wouldn’t take effect for months. Treasury yields turned higher to trade near 2.79 percent. The dollar fell as the Mexican peso strengthened after the U.S. president was said to have softened on his car-parts demand in North American Free Trade Agreement negotiations.

Still, fear that the tensions could escalate at any time hit specific sectors after after China said it would levy 25 percent tariffs on some U.S. imports. Boeing lost more than 1 percent, the Cboe Volatility Index held near double its level for the past year. Soybeans slumped and energy producers retreated.

“Markets don’t like uncertainty, and this back and forth with what the U.S. is doing with tariffs and targeting specifically Chinese products and Chinese trade relationships and policies, they’re obviously not good,” Omar Aguilar, chief investment officer for equities at Charles Schwab Investment Management, said in an interview at Bloomberg’s New York headquarters.

Terminal users can follow the escalating trade tensions in our live blog.

Markets have been buffeted in recent weeks by everything from a volatility spike and a tech selloff to fears of an all-out trade war, and developments on Wednesday suggest there may be more turbulence to come. Investors are having to weigh the growing protectionist rhetoric between the U.S. and China against the chances of measures having a meaningful effect on the still-upbeat global growth picture.

“Trade uncertainty is the main headwind to the market,” Charles St-Arnaud, an investment strategist at Lombard Odier Asset Management in London, said by phone. “At this juncture we need to be careful. The macro picture hasn’t changed massively yet. Growth remains robust, unless we go into a bigger trade war.”

Here are some key events coming up this week:

• U.S. employment data are due Friday; the jobless rate probably fell in March after holding at 4.1 percent for five straight months.
• The Reserve Bank of India decides on policy Thursday.

These are the main moves in markets:

Stocks

• The S&P 500 gained 1.2 percent to 2,644.74 at 4 p.m. in New York.
• The Nasdaq 100 Index rose 1.6 percent.
• Boeing’s 1 percent drop was the biggest in the Dow Jones Industrial Average.
• The Stoxx Europe 600 Index dropped 0.5 percent.
• The MSCI Emerging Market Index fell 1.2 percent to the lowest in almost eight weeks.

Currencies

• The Bloomberg Dollar Spot Index dipped 0.1 percent.
• The euro was little changed at $1.228.
• The Japanese yen fell 0.2 percent to 106.80 per dollar.

Bonds

• The yield on 10-year Treasuries rose two basis points to 2.79 percent.
• Germany’s 10-year yield dipped one basis point to 0.49 percent, the lowest in 12 weeks.
• Britain’s 10-year yield declined two basis points to 1.359 percent, the lowest in almost 11 weeks.

Commodities

• West Texas Intermediate crude was steady at $63.52 a barrel.
• Gold futures was little changed at $1,332.83 an ounce.
• The Bloomberg Commodity Index decreased 0.4 percent.

--With assistance from Samuel Potter and Cecile Gutscher

To contact the reporters on this story: Jeremy Herron in New York at jherron8@bloomberg.net, Sarah Ponczek in New York at sponczek2@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Todd White

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