(Bloomberg) — Equities and Treasury yields fell on Monday as concerns about the health of the US economy weighed on investors’ appetite for risk.
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A gauge of Asian shares dropped as equity futures contracts for the S&P 500 declined 0.4% and those for the tech-heavy Nasdaq 100 also fell. Treasury yields slipped across maturities as investors sought the safety of fixed income assets.
The shift toward havens lifted both the yen and the Swiss franc, while a gauge of the dollar held just shy of its lowest since November as confidence in further US economic outperformance faltered. Gold inched up, while oil fell to near the lowest since September as weak economic data from China compounded a dour outlook for demand.
Tariffs on major trading partners, a higher unemployment rate and federal workforce job cuts are raising the prospect of a slowdown in growth in the world’s largest economy after outperforming China and Europe for months. Bond traders are signaling an increasing risk that the US economy will stall, while President Donald Trump said the economy faces “a period of transition.”
“It’s getting harder to make out the shape of the economy through the fog of Trump 2.0’s firings and tariffs,” said Ed Yardeni, president of Yardeni Research. “No wonder the stock market’s default position is risk-off and stocks have been correcting.”
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Traders have been piling into short-dated Treasuries, pulling the two-year yield down sharply since mid-February, on expectations the Federal Reserve will resume cutting interest rates as soon as May to keep the economy from deteriorating. The movement marks an abrupt about-face for the Treasuries market, where the dominant driver of the last few years had been the surprising resilience of the US economy even as growth weakened overseas.
Federal Reserve Bank of San Francisco President Mary Daly said growing uncertainty among businesses could slow demand in the US economy but doesn’t require a change in interest rates. Fed Chair Powell also acknowledged a rise in uncertainty for the US economic outlook on Friday. Furthermore, he expected the path to 2% inflation to continue, suggesting price hikes from tariffs may be temporary.
“We turn tactically cautious on risk assets,” JPMorgan Chase & Co analysts led by Fabio Bassi wrote. “The increase in policy uncertainty over the past couple of weeks, the volatility around a potential Russia/Ukraine ceasefire, and the unprecedented new information around the German/EU fiscal plans triggered an extremely volatile fortnight with abrupt adjustment of positions.”
Wall Street strategists have been debating whether the Trump administration would be swayed on its tariff plans as stocks tumble. The thinking being that Trump will ditch policies if the stock market — which he touts as a report card — drops and rattles investors. Various firms even mapped out how much pain Trump could tolerate in the S&P 500 Index before retreating. That index level became known as “the Trump put,” in reference to a put option.
“It’s Trump’s cavalier approach to economic policy that’s rattling sentiment,” said Kyle Rodda, a senior analyst at Capital.com in Melbourne. “He is genuinely focused on significant, structural change to the economy — even if it comes at the expense of short-term growth. This completely flies in the face of a pretty critical axiom in the markets — that there is a pretty tight “Trump put” that would always support the stock market.”
European share markets and the common currency got a fillip from Germany moving away from fiscal austerity and the region ramping up military defenses. Euro Stoxx 50 futures pointed to a higher open on Monday.
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US job growth steadied last month, with nonfarm payrolls increasing by 151,000 in February after a downward revision to the prior month, data on Friday showed. The unemployment rate climbed to 4.1%.
Tariffs and Trump’s policies have started having their “fair share of pressures on the equity markets, plus we have now started seeing a lot of concerns around US growth,” Rupal Agarwal, Asia quantitative strategist at Sanford C. Bernstein, said in a Bloomberg TV interview. “There are expectations that inflationary pressure could again start creeping up. So I would say too soon to use the R-word, but definitely heading toward stagflation,” she said referring to recession.
In Asia, China’s consumer inflation dropped far more than expected to fall below zero for the first time in 13 months as deflationary pressures persisted in the economy. Investors will now be looking for signs that the government’s stimulus is translating into stronger domestic demand.
Separately, China said it will impose retaliatory tariffs on imports of rapeseed oil, pork and seafood from Canada as the trade war escalated. Canola slid by the exchange limit.
In Canada, Mark Carney won the race to become the country’s next prime minister.
Key events this week:
Germany industrial production, Monday
Japan current account, Monday
Australia consumer confidence, Tuesday
Japan GDP, household spending, money stock, Tuesday
US job openings, Tuesday
Canada rate decision, Wednesday
Japan PPI, Wednesday
US CPI, Wednesday
Eurozone industrial production, Thursday
US PPI, initial jobless claims, Thursday
France CPI, Friday
Germany CPI, Friday
UK industrial production, Friday
US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.4% as of 12:12 p.m. Tokyo time
Japan’s Topix rose 0.2%
Australia’s S&P/ASX 200 rose 0.2%
Hong Kong’s Hang Seng fell 1.6%
The Shanghai Composite fell 0.5%
Euro Stoxx 50 futures rose 0.7%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0835
The Japanese yen rose 0.3% to 147.59 per dollar
The offshore yuan fell 0.2% to 7.2627 per dollar
Cryptocurrencies
Bitcoin fell 1.3% to $81,976.13
Ether rose 0.2% to $2,052.05
Bonds
Commodities
West Texas Intermediate crude fell 0.6% to $66.65 a barrel
Spot gold rose 0.1% to $2,912.71 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Toby Alder, Winnie Hsu and Abhishek Vishnoi.
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