Stocks Suffer Worst Week of Year on Trade, Fed: Markets Wrap

(Bloomberg) -- U.S. stocks suffered the worst week of 2019 as investors fretted over Donald Trump's escalation of his trade war with China. Treasuries rose, while the yen strengthened.

The S&P 500 fell for a fifth straight day, its steepest weekly loss since December's sell-off. Trade angst recaptured center stage after Trump said Thursday he'd slap more tariffs on Chinese goods, adding to worries that the spat could derail the global economy. China vowed it would counter the threat. The president ratcheted up his rhetoric late Friday, saying he could boost the levies to a “much higher number.” Stocks were already under pressure after investors groused that the first Federal Reserve rate cut in a decade didn't come with assurances of further easing.

Ten-year Treasury yields held near the lowest level since 2016 after the July U.S. jobs report did little little to alter views on the economy and path for future rate policy. The dollar was lower against most major currencies. West Texas crude clawed back some of its 8% slide on Thursday, while copper fell to a two-year low in London.

“The Fed is largely easing policy because of the possibility that trade tensions will impact the global economy and the feedback into the U.S. economy would be negative, and that calculus appears to be correct,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “Yesterday's announcement of an escalation of trade tensions is the key risk to markets now that the Fed is easing monetary policy and it bears watching how far the administration will push tariffs that ultimately impact the consumer, which up to this point has been very resilient.”

The jobs report Friday added another piece to an already large puzzle that includes the Fed, earnings and trade. While China has yet to offer details on what measures it would take, the sudden escalation of the spat has put markets in a spin in an already action-packed week of corporate earnings and central-bank meetings. The developments come after the Federal Reserve chief cast doubt about a long cycle of interest-rate cuts, provoking the president's ire and disappointing many investors.

Elsewhere, most European government bonds rose alongside the common currency. The pound gained after a by-election loss reduced U.K. Prime Minister Boris Johnson's House of Commons majority to a single seat.

Here are the main moves in markets (all sizes and scopes are on a closing basis):

Stocks

The S&P 500 Index dipped 0.7% as of 4 p.m. New York time, hitting the lowest in five weeks and capping the worst weekly loss since December 2018.
The Dow Jones Industrial Average decreased 0.6% to the lowest in more than six weeks.
The Nasdaq Composite Index declined 1.6%, hitting the lowest in five weeks.
The Stoxx Europe 600 Index decreased 2.5%, the lowest in more than six weeks.

Currencies

The Bloomberg Dollar Spot Index fell 0.1%.
The Japanese yen gained 0.7% to 106.47 per dollar, the strongest in 16 months.
The euro rose 0.2% to 1.1112 per dollar.

Bonds

The yield on 10-year Treasuries fell four basis points to 1.85%.
The yield on two-year Treasuries decreased two basis points to 1.72%.
Germany's 10-year yield dipped five basis points to -0.495%, hitting the lowest on record.