Shares and dollar tumble as tariff tensions flare

Zawya

5 days ago

Stocks and the dollar fell on Monday as U.S.-China trade tensions bubbled and investors turned defensive ahead of U.S. jobs data and a widely expected cut in European interest rates.
Shares in steelmakers, which export metal to the United States, dropped in reaction to President Donald Trump's threat late on Friday to double tariffs on imported steel and aluminium to 50%, starting June 4. The move drew criticism from European Union negotiators.
Speaking on Sunday, U.S. Treasury Secretary Scott Bessent said Trump would soon speak with Chinese President Xi Jinping to iron out a dispute over critical minerals.
Beijing then forcefully rejected Trump's trade criticism, suggesting a call might be some time coming.
With tensions rising again over tariffs and trade, sentiment looked fragile in Europe, where the STOXX 600 fell 0.2% on the day and euro zone government bonds sold off, while the euro benefited from an investor push out of dollar holdings.
"The flip-flopping on trade policy looks set to continue and it appears the uncertainty this creates does not bother President Trump at all. That is likely to give investors the reason to renew selling of the U.S. dollar," MUFG strategist Derek Halpenny said.
The dollar has lost 9% in value against a basket of six major currencies so far this year. The index was last down 0.53% on the day at 98.83.
White House officials also continued to play down a court ruling that Trump had overstepped his authority by imposing across-the-board duties on imports from U.S. trading partners.
Investors will be watching for signs to indicate whether Trump will go ahead with the 50% tariff on Wednesday or back off as he has often done before.
Safe-haven assets found plenty of demand on Monday, with the likes of the Japanese yen and Swiss franc staging a robust rally, as did gold.
There was some speculation about what Ukraine's astonishing attack on Russian air bases might mean for peace talks resuming on Monday.
In Poland, nationalist opposition candidate Karol Nawrocki narrowly won a presidential election, delivering a major blow to the centrist government's efforts to cement Warsaw's pro-European orientation.
TARIFF TURBULENCE
In U.S. markets, S&P 500 futures fell 0.3%, while Nasdaq futures lost 0.4%, suggesting a retreat at the opening bell later. The S&P had climbed 6.2% in May, while the Nasdaq rallied 9.6% on hopes that final import levies will be far lower than the sky-high levels initially touted by Trump.
Front-running the tariffs has already caused wild swings in the U.S. economy, with a contraction in the first quarter likely turning into a jump this quarter as imports fall back.
The Atlanta Fed GDPNow estimate is running at an annualised 3.8% for April-June, though analysts assume this will slow sharply in the second half of the year.
Data this week on U.S. manufacturing and jobs will offer a timely reading on the pulse of activity, with payrolls expected to rise 130,000 in May and unemployment to remain at 4.2%.
A rise in unemployment is one of the few developments that could get the Federal Reserve to start thinking of easing again, with investors having largely given up on a cut this month or next.
A move in September is given an approximately 75% chance, though Fed officials have stopped well short of endorsing such pricing.
Fed Governor Christopher Waller said on Monday that cuts remain possible later this year as he saw downside risks to economic activity and employment and upside risks to inflation from the tariffs.
The Senate will this week start considering a tax-and-spending bill that will add an estimated $3.8 trillion to the federal government's $36.2 trillion in debt.
Across the Atlantic, the European Central Bank is considered almost certain to cut its rates by a quarter point to 2.0% on Thursday, while markets will be sensitive to guidance on the chance of another move as early as July.
The Bank of Canada meets Wednesday and markets imply a 76% chance it will hold rates at 2.75%, while sounding dovish on the future given the tariff-fuelled risk of recession there.
On Monday, the dollar fell 0.9% on the yen to below 143 , and was down 0.6% to 0.818 Swiss francs. The euro was up 0.55% to $1.1412, around its highest since late April.
In commodity markets, gold rallied 2% to $3,356 an ounce , having lost 1.9% last week. Brent crude oil rose by almost 4% to $65 a barrel after OPEC+ decided to increase output in July by the same amount as in each of the prior two months, a relief to some who had feared an even bigger increase.
(Reporting by Wayne Cole; editing by Christopher Cushing, Jacqueline Wong, Kevin Liffey and Mark Heinrich)