Stocks and commodities around the world generally moved in tandem last week, stoking fears that declines could accelerate across riskier assets if the U.S. and China aren’t able to resolve their trade fight.
After President Trump and Treasury Secretary Steven Mnuchincalled the most recent trade talks constructive, U.S. and global stocks trimmed their weekly drops to just over 2% Friday. Still, the S&P 500 and MSCI AC World ex USA Index posted their worst weekly performances of the year after a rocky week.
The Shanghai Composite slipped 4.5%, even including a Friday surge, reflecting investor worries that more stringent U.S. tariffs on $200 billion worth of Chinese imports could hurt the world’s second-largest economy.
Investors also retreated from commodities that are critical to the global transportation and manufacturing industries, pushing copper and oil down more than 6.5% from their 2019 peaks hit late last month.
The synchronous moves were reminiscent of trading patterns late in 2018, when fears about a sharp slowdown in the global economy sent many risk assets to their worst quarter in several years.
Analysts say the prospect of an extended trade fight between the U.S. and China could crimp business and consumer spending, constraining economic activity and fueling fresh angst about slower economic and profit growth. At the same time, some are holding out hope that an agreement eventually improves the outlook for the world economy.
“It’s very much a challenge because you’re guessing,” said Jamie Cox, managing partner at Harris Financial Group. “There’s no systematized way any of us can game out what the eventual decision will be.”
Last week’s market gyrations upended a calm stretch of trading during which optimism about a trade agreement, Chinese stimulus measures to spur growth and the Federal Reserve’s halt to interest-rate increases pushed the S&P 500 to a fresh all-time high late last month. Even with last week’s drop, the broad equity gauge is still up 15% for the year, and some analysts are optimistic a trade agreement will eventually spur a market rebound.
Still, some analysts remain wary that a continuation of last week’s volatility could lead to further declines. Several upbeat momentum indicators helped support gains to start 2019, but a reversal could spur selling, these analysts say.
Adding to the uncertainty, Mr. Trump threatened to impose additional levies on virtually everything China exports to the U.S., raising the prospect of duties on $325 billion in Chinese goods that aren’t currently taxed and higher prices for a host of consumer products.
Although the U.S. economy has shown signs of continued strength this year, gauges of factory and manufacturing activity have continued to slide with trade talks ongoing.
The Citigroup Economic Surprise Index for the U.S., which measures in aggregate whether or not economic data are meeting expectations, has rebounded from its late-April lows but is still firmly in negative territory, indicating figures are broadly still missing targets. A comparable gauge for emerging markets is also still in negative territory.
In one sign that investors are fearful that the trade spat could slow down economic activity, safe-haven metal gold climbed for the fifth time in sixth sessions on Friday as riskier assets continued to swing. Treasurys have also stayed steady. The yield on the benchmark 10-year U.S. Treasury note ended the week at 2.455%, down from 2.531% a week earlier. Bond yields fall as prices rise.
In another cautious signal, traders also increased wagers that the Federal Reserve will lower interest rates in 2019. About 57% are anticipating at least one rate cut this year, up from 47% a week earlier when Fed chairman Jerome Powell said he expects inflation to rebound and April hiring figures exceeded expectations.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
https://www.wsj.com/articles/lockstep-market-swings-worry-investors-11557666006
2019-05-12 13:00:00Z
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