Simmering fears of a global trade war yesterday overshadowed robust data from China and kept government bond yields low in the US and Europe, with US stocks sinking into the red amid a drop in industrial shares.
US President Donald Trump on Tuesday fired Secretary of State Rex Tillerson, seen as a free-trade proponent, replacing him with the more hawkish former Central Intelligence Agency Director Mike Pompeo.
Later on Tuesday, Reuters reported that the US was seeking to impose tariffs on up to $60 billion of Chinese imports.
The news contributed to a continued flattening yesterday of the US yield curve, a move also aided by a third consecutive monthly decrease in retail sales data.
The spread between five-year notes and 30-year bonds, an indicator of the shape of the yield curve, lowered to 44.9 basis points yesterday, three basis points below its last close.
Benchmark 10-year notes last rose 11/32 in price to yield 2.8079 percent, from 2.848 per cent late on Tuesday.
In Europe, high-rated government bond yields edged higher but remained near recent lows. German 10-year government bond yields seesawed in midday trades, falling to a one-and-a-half-month low at around midday.
Positive news from China spurred higher openings on Wall Street, but the main stock indexes could not weather political fears as trading wore on.
China reported industrial output expanding at a surprisingly faster pace at the start of the year. Fixed asset investment also beat forecasts, while retail sales improved.
The Dow Jones Industrial Average fell 240.62 points, or 0.96 per cent, to 24,766.41, the S&P 500 lost 11.3 points, or 0.41 per cent, to 2,754.01 and the Nasdaq Composite dropped 20.44 points, or 0.27 per cent, to 7,490.58.
“The market is still trying to weigh concerns about tariffs on one hand and understanding how the President acts and how he speaks openly and comes up with a different policy in the end,” said Robert Pavlik, chief investment strategist at SlateStone Wealth.
The pan-European FTSEurofirst 300 index lost 0.10 per cent and MSCI’s gauge of stocks across the globe shed 0.39 per cent.
Meanwhile, the Chinese data spurred an early spike for oil, before prices dropped later.
US crude fell 0.36 per cent to $60.49 per barrel and Brent was last at $64.50, down 0.22 percent on the day.
In currencies yesterday, the dollar index rose 0.18 per cent, with the euro down 0.26 per cent to $1.2357.