“President Trump’s trade barriers are causing concerns for the Fed, where policymakers believe [such measures] will put a break on growth and the market seems to agree,” says Paul Flood, portfolio manager of the Newton Multi-Asset Income Fund.
The dollar is slipping, stock markets are under pressure and there is sustained demand for US government debt after the Federal Reserve stuck by forecasts that it will lift interest rates by a total of three times in 2018.
Meanwhile, worries about the impact of a potential trade war on global growth is deepening a sense of unease, knocking stocks and adding to the appeal of safer assets.
As expected, the US central bank lifted the target range for the federal funds rate by a quarter point to 1.75 per cent. Policymakers’ projections pointed to an extra rate increase in 2019 and further tightening in 2020, and said inflation would accelerate. Nonetheless, talk that they would signal a total of four rises for this year proved wrong.
That left the dollar looking exposed, and the index tracking it fell to a 10-session low on Thursday to 89.524, taking it down 1 per cent over the last two sessions and leaving its fall over the week at 0.8 per cent.
The yield on the 10-year US Treasury is falling as investors buy into the debt. It is down 4.6 basis points at 2.861 per cent. That on 2-year Treasuries is down 1.7bp at 2.299 per cent.
European stocks are falling, with selling gathering pace after mixed showing in Asia.
Frankfurt’s Xetra Dax 30 is down 1 per cent, with London’s FTSE 100 0.6 per cent weaker. The Europe-wide Stoxx 600 is down 0.8 per cent.
Japan’s Topix swung between gains and losses to rise 0.7 per cent overall.
Hong Kong’s Hang Seng fell 1.1 per cent. The CSI 300 index of Shenzhen and Shanghai stocks fell 1.1 per cent as the latest threats of trade curbs from the Trump administration were said to be designed to stop China from stealing the intellectual property of American business, and after the Chinese central bank raised short-term rates.
US stocks are expected to fall further after weakening over a choppy session on Wednesday. Futures trade is pointing to losses of 0.7 per cent for the S&P 500 after a 0.2 per cent slip.
The pound is up 0.2 per cent at $1.4170 ahead of a rate call from the Bank of England, at which it is expected to leave interest rates on hold, with analysts thinking the next increase will come in May.
The euro is up 0.4 per cent at $1.2384, while the yen is 0.3 per cent stronger at 105.68.