Stocks backtrack as US inflation adds to trade war worries
LONDON, March 28 (Reuters) – Wall Street looked set to extend a run of losses for world stocks and safe-haven gold notched another record high on Friday, as the latest tariff from U.S. President Donald Trump stoked worries of an all-out trade war.
U.S. traders had new sticky inflation data to grumble about but it was Trump’s 25% tariffs on auto imports and plans for much broader levies next week that continued to cause the nail-biting.
S&P 500 futures were down. Europe’s STOXX 600 index (.STOXX), opens new tab was set for a 1% weekly drop thanks to a 2% drop by the car and auto parts sector (.SXAE), opens new tab while both Japan and Korea’s markets – home to giants like Toyota (7203.T), opens new tab Honda (7267.T), opens new tab and Hyundai (005380.KS), opens new tab – had both fallen roughly 2% overnight.
State Street’s head of global macro strategy Michael Metcalfe said that U.S. car tariffs had been more aggressive than expected, especially as there had been no adjustments made for Washington’s neighbours like Mexico and Canada.
What I don’t know is whether the hawkishness of the auto tariffs is going to translate to the broader tariffs that we are going to get next week,” Metcalfe said. “And that is keeping risk appetite on the back foot.”
In currency markets, the dollar (.DXY), opens new tab tracked sideways after core U.S. Personal Consumption Expenditures data, the Federal Reserve’s preferred gauge for prices, rose at a slightly faster monthly rate of 0.4%.
“The unexpected uptick in core inflation points to persistent underlying price pressures,” Capital.com’s Daniela Sabin Hathorn said. “Especially since the full impact of newly imposed tariffs is unlikely to have filtered into the data yet.
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Wall Street was poised for a lower open after the inflation data.
Some car firms, including Volvo (VOLCARb.ST), opens new tab, Volkswagen’s Audi, Mercedes-Benz (MBGn.DE), opens new tab and Hyundai (005380.KS), opens new tab, have already said they will relocate portions of their production in response to Trump’s tariffs. Ferrari (RACE.MI), opens new tab, which makes all of its cars in Italy, said it would raise prices by up to 10% on some models.
Hong Kong’s Hang Seng (.HSI), opens new tab had fallen overnight as traders there await clarity on Trump’s China tariffs.
He has said he would be willing to reduce the hit to Beijing to get a deal done with TikTok’s Chinese parent ByteDance to sell the popular app. The focus, though, is on the worldwide “reciprocal” tariffs Trump is due to announce on April 2. which he has dubbed “Liberation Day”.
“Not surprisingly, the tariff talk is resulting in another round of risk-off,” said Thierry Wizman, global FX & rates strategist at Macquarie. He added that tariffs are likely to be both “growth-restraining and inflation-producing”.
In commodities, oil prices turned flat as traders assessed a tightening of crude supplies along with new U.S. tariffs and their expected effect on the world’s economy.
Brent crude futures were at $74 a barrel, up more than 2% for the week.
Gold prices meanwhile set yet another new peak as the threat of trade wars drives a rush towards the safe-haven metal. The day’s gains left it at $3,065 per ounce. For the quarter it is now up more than 17%, which is its best quarterly performance since 1986.
“Continued haven demand, coupled with EM central-bank buying in an effort to diversify FX reserves, make for a convincing bull case here,” said Michael Brown, senior research strategist at Pepperstone.
CREDIT: REUTERS