Trade Tensions Dent Stocks, Overshadowing Fed Cut: Markets Wrap

(Bloomberg) --

A Friday flare-up in trade tensions between the U.S. and China sent American equities to the first weekly decline in a month. Treasuries capped a fifth straight gain and the dollar rose.

The S&P 500 halted a three-day advance on the week’s final day, with losses coming after Chinese trade officials canceled farm visits and President Donald Trump called the nation a threat. Technology and consumer shares sensitive to U.S. tariffs on Chinese goods paced the decline. Stocks edged higher for most of the week after the Federal Reserve delivered a rate cut and promised to do more if needed. Data on housing and manufacturing topped estimates.

Treasuries climbed all week, sending the 10-year yield lower by 17 basis points. The move was unrelated to problems in the short-term funding market that prompted the New York Fed to announce a series of overnight operations for the next three weeks to ensure a vital corner of financial markets work properly. The dollar nudged higher in the five days.

U.S. equity trading may have been extra volatile Friday because of a quarterly event known as “quadruple witching,” when options and futures on indexes and stocks expire. The moves bring some of the busiest trading days of the year, and volume was above average on the week’s last trading day.

After a slew of monetary policy decisions this week, including the Fed’s interest-rate cut Wednesday and pledge to support economic growth, traders are now looking toward negotiations between the U.S. and China. President Donald Trump said Friday he doesn’t want to make a partial trade deal with China and that voters won’t punish him for the ongoing trade war in his 2020 bid for re-election.

“I keep calling it the headline hokey pokey -- that’s kind of how it feels,” said Matt Lloyd, chief investment strategist at Advisors Asset Management, which has about $30 billion in assets under management. “The back and forth will continue. I don’t think anything will get done until 2020.”

Elsewhere on Friday, the Stoxx Europe 600 Index advanced. The pound fell as the Irish government damped hopes of an imminent breakthrough in Brexit negotiations.

Asian stocks saw modest gains on reduced volumes, except in India, where equities soared after the country cut its corporate tax rate. Hong Kong shares slipped while the Shanghai Composite Index added just 0.2% after China’s modest cut to a reference rate for bank loans failed to impress investors.

Here are the main moves in markets:

Stocks

• The S&P 500 Index fell 0.5% at the close of trading in New York, leaving it down by the same amount for the week.
• The Stoxx Europe 600 Index advanced 0.3%.
• The MSCI Asia Pacific Index climbed 0.4%.
• The MSCI Emerging Market Index climbed 0.4%.

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%.
• The euro fell 0.2% to $1.1021.
• The British pound decreased 0.4% to $1.2473.
• The Japanese yen gained 0.4% to 107.55 per dollar.

Bonds

• The yield on 10-year Treasuries fell six basis points to 1.72%.
• Germany’s 10-year yield fell one basis point to -0.53%.
• Britain’s 10-year yield slipped one basis point to 0.63%.

Commodities

• Gold rose 1.1% to $1,515.90 an ounce.
• West Texas Intermediate crude fell 0.1% to $58.09 a barrel.

--With assistance from Adam Haigh, Todd White, Lu Wang and Constantine Courcoulas.

To contact the reporters on this story: Brendan Walsh in Austin at bwalsh8@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, ;Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh

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