US tariffs rattle markets, exporters warn of retaliation

World week ahead: The February jobs report, due on Friday (Saturday NZ time), could shed light on US wage growth and inflation trends.

Financial markets face another turbulent week as they absorb the implications of a global response to US tariff hikes on steel and aluminium.

The Dow Jones Industrial Average, which includes several big manufacturing, machinery and chemical companies that would suffer from higher metal prices, closed 0.3% lower on Friday after a 1.7% decline the day before.

A late rebound on Friday afternoon after a sharp opening decline eased some worries the tariffs may signal the start of a broader protectionist trade policy that could eventually include other commodities and products.

“Protectionism is not a good thing, and the ramifications for this could be significant,” says Michael Farr, president of money-management firm Farr, Miller & Washington. 

He said the stocks recovery in afternoon trading was encouraging but there was reason to remain wary.

“Starting a trade war would be reckless. I don’t think you can be sanguine talking about any war, even if it’s just economic. There will be suffering, there will be serious casualties.”

Some export-oriented US companies warned of the risks of retaliatory trade measures that could hurt their sales outlook as their share prices fell. Among the worst decliners was Boeing, which fell more than 1%, ending the week down 3.4%.

Italian elections
In addition to trade concerns, investors will scrutinise the results of the Italian elections at the weekend to gauge risks to the eurozone’s third-largest economy. The polls close this morning (NZ time).

In the US, fresh data due on Wednesday (Thursday NZ time) on the trade deficit will offer a view of the state of government finances, while the February jobs report, due Friday (Saturday NZ time), could shed light on wage growth and inflation trends.

JP Morgan Chase said nonfarm employment, after increasing by 200,000 in January, reached 225,000 last month. “Generally mild weather should support a solid outcome,” it says.

Away from the data, US Federal Reserve speakers on the calendar including governor Lael Brainard speaking on the economy and monetary policy on Tuesday (Wednesday NZ time).

Trade and growth concerns inject new uncertainty at a time when stocks are coming off their worst month in more than two years.

Inflation fear
Investors are already grappling with the threat of an economy expanding so quickly that the Fed may have to hasten its pace of interest-rate hikes to tame inflation.

Low interest rates have long been a justification for stocks’ lofty valuations, and investors say higher rates will make equities less attractive as borrowing costs and Treasury yields rise.

The Dow hit its all-time high of 26,616.71 on January 26 before suffering its first 10% decline, or correction, in nearly two years early last month. It fell 3% last week to 24,538.06.

The other benchmarks fared better. The S&P 500 rose 0.5% to 2691.25 and the Nasdaq Composite gained 1.1% to 7257.87, though they posted weekly losses of 2% and 1.1%, respectively.

Gold rose 1.4% to $US1321.10 a troy ounce but government bonds found little support. Yields on 10-year Treasurys rose to 2.855% from 2.802% on Thursday.

In Europe, the Stoxx 600 Index closed the week with a 2.1% plunge. In Germany, where members of the Social Democratic Party backed Chancellor Angela Merkel’s “grand coalition” by a two-to-three margin, the DAX fell 2.3%.

Italy’s FTSE MIB dropped 2.4% ahead of the election on Sunday. The UK’s FTSE 100 fell 1.5% and France’s CAC 40 fell 2.4%.

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