U.S. Stocks Hit 3-Week Low as Trade Tensions Rise: Markets Wrap

(Bloomberg) -- A week dominated by political drama in Washington ended with the specter of a deepening trade war, sending U.S. stocks to a three-week low and bolstering demand for haven assets.

The S&P 500 fell 1.1% in the five days to pare its gain in the third quarter to about half a percent. Friday brought the latest drama after a report that the Trump administration is considering sweeping limits to capital-market investments, forcing Wall Street to asses the impact on potentially billions of dollars of assets. Stocks most sensitive to trade and ones linked to China paced the selling. The index bounced from its lows after dipping below a key technical indicator.

Stocks were under pressure for most of the week, but the start of an impeachment inquiry of Donald Trump on Tuesday brought the steepest selling, as another major risk was added a market on edge over slowing global growth. The dollar advanced and Treasuries rose in the week.

Heading into the weekend, stocks started stronger before the latest salvo from the Trump administration in its spat with China over trade rattled the market. Trade tensions had shown signs of easing in recent weeks ahead of a Chinese delegation’s visit next month for high-level talks.

“This back and forth escalation like ‘oh, we’re going to play nice and come to the table and the next day we’re going to limit money flows to this other country’ is just silly and it’s really playing with fire,” Jennifer Ellison, principal at San Francisco-based BOS, said by phone. “This is all part of what makes the economy tick and we could take some steps backwards if we really get this wrong.”

A U.S. crackdown on capital flows would expose a new pressure point in the economic dispute and cause disruption well beyond the hundreds of billions in tariffs the two sides have levied against each other. The Invesco China Technology ETF dropped 1.6%, with losses accelerating midday. The iShares China Large-Cap ETF fell 1.4% while the broader iShares MSCI China ETF was off 1.9%. The KraneShares CSI China Internet Fund lost 2.6%.

The news overshadowed data showing the U.S. economy cooled a bit in August. Tech shares were already under pressure after Micron Technologies lead losses after it cut its profit forecast, citing the U.S.-China trade war.

Elsewhere, Bitcoin slipped for a sixth session close to the $8,000 mark, in its longest losing streak in almost a year. Earlier in Asia, Japanese equities tumbled as a swath of companies traded without the right to the next dividend payment.

Here are the main moves in markets:

Stocks

• The S&P 500 Index fell 0.5% as of 4 p.m. New York time.
• The Nasdaq 100 lost 1.4%.
• The Stoxx Europe 600 Index added 0.5%.
• The MSCI Asia Pacific Index declined 0.9%.
• The MSCI Emerging Market Index declined 0.8%.

Currencies

• The Bloomberg Dollar Spot Index was little changed.
• The euro rose 0.2% to $1.0938.
• The British pound declined 0.2% to $1.2307.
• The Japanese yen weakened 0.1% to 107.96 per dollar.

Bonds

• The yield on 10-year Treasuries fell less than one basis point to 1.68%.
• Germany’s 10-year yield gained one basis point to -0.57%.
• Britain’s 10-year yield dipped one basis point to 0.513%.

Commodities

• Gold declined 0.7% to $1,504.40 an ounce.
• West Texas Intermediate crude fell 1.2% to $55.69 a barrel.

--With assistance from Constantine Courcoulas.

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Randall Jensen

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