AP Photo/Kathy Willens, File

Market Watch: US stocks and bond yields dip amid trade worries

June 15, 2018 - 10:02 am

By STAN CHOE, AP Business Writer

NEW YORK (AP) — U.S. stocks fell on Friday after the Trump administration stepped up the trade dispute between the world's two biggest economies by announcing tariffs on $50 billion of imports from China. The S&P 500 pared its loss as the day wore on, though, and was down only modestly in afternoon trading.

After the Trump administration's tariff announcement, China almost immediately said it would retaliate with its own of the same scale, raising the possibility of an escalating trade war that could leave the global economy as collateral damage. Barriers to trade could result in higher prices at stores for all kinds of products, weaker profits for companies and slower growth around the world.

Many economists see free trade as a boon for the global economy, making it more efficient and allowing companies to earn bigger profits, which in turn leads to higher stock prices. President Donald Trump, though, has railed against the deficits that the United States has with other countries as unfair.

Investors have been closely following the United States' trade disputes with its partners, and many had expected Trump to announce tariffs against Chinese imports. Some hope that they are used as a negotiating tool to craft sweeping trade deals rather than as ends in themselves.

"It's something that could hurt the economy if followed through on, but for now, markets seem to be assessing this as just a negotiation that is out there for everyone to see," said Matthew Miskin, markets strategist with John Hancock Investments.

KEEPING SCORE: The S&P 500 was down nearly 2 points, or 0.1 percent, at 2,781, as of 2:50 p.m. Eastern time. It had been on pace for its worst day since late May before clawing back most of its losses as the afternoon progressed. The day's action was reminiscent of April 4, when stocks plunged at the opening bell on worries about a possible tariff tiff between the United States and China only to end the day higher.

The Dow Jones industrial average dropped 65 points, or 0.3 percent, to 25,109 , and the Nasdaq composite sank 12, or 0.2 percent, to 7,749.

A BUSY WEEK: Friday's tariff announcement caps a whirlwind week full of encouraging reports on the U.S. economy and policy announcements from the world's biggest central banks. So while the trade dispute hurt stocks on Friday, it wasn't the only thing moving markets.

Attention is focused on central banks because they're in various stages of pulling away from the emergency stimulus they put in place following the Great Recession. The Bank of Japan decided on Friday to keep its stimulus program on track, for example. A day earlier, the European Central Bank said it would halt its bond-buying program after the end of the year, though it also pledged to hold off on rate increases through the summer of 2019.

The Federal Reserve is further along this path. On Wednesday, it raised its benchmark rate for the fourth time in the last year and indicated two more increases may be on the way in 2018, which was more aggressive than some investors expected. It's making the moves because of the stronger economy, and that may mean something counterintuitive for the lay investor.

"Stocks and the economy might go separate ways," Miskin said. "The economy might actually feel good for the first time in a decade, but the problem is that those tend to be the periods at the end of the cycle."

OIL SLIDE: The price of crude dropped sharply amid speculation that oil-producing countries could push to increase production at next week's OPEC meeting. Benchmark U.S. crude fell $1.83 to $65.06 per barrel. Brent crude, the international standard, lost $2.50 to $73.44 per barrel.

That helped drag energy in the S&P 500 down 1.6 percent for the largest loss among the 11 sectors that make up the index. Marathon Oil had the biggest loss in the S&P 500, down 4.4 percent to $20.20.

WORLD MARKETS: Stock markets in Europe and Asia were mostly down.

The DAX in Germany lost 0.7 percent, and the CAC 40 in France dipped 0.5 percent. In London, the FTSE 100 lost 1.7 percent. In Asia, South Korea's Kospi shed 0.8 percent, and the Hang Seng in Hong Kong fell 0.4 percent. Japan's Nikkei 225 index was an outlier and rose 0.5 percent.

YIELDS: Treasury yields fell for a second straight day, and the yield on the 10-year Treasury sank to 2.92 percent from 2.94 percent late Thursday.

COMMODITIES: Gold dropped $29.80 to settle at $1,278.50 per ounce, silver fell 78 cents to $16.48 per ounce and copper lost 8 cents to $3.14 per pound.

Natural gas rose 6 cents to settle at $3.02 per 1,000 cubic feet, heating oil lost 7 cents to $2.09 per gallon and wholesale gasoline fell 7 cents to $2.02 per gallon.

CURRENCIES: The dollar rose to 110.60 Japanese yen from 110.57 yen late Thursday. The euro rose to $1.1611 from $1.1591, and the British pound rose to $1.3283 from $1.3281.


AP Business Writer Youkyung Lee contributed from Seoul, South Korea.

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