Stocks post worst week in 2 years as trade war rhetoric escalates

France readies for battle in trade war

Asian stock markets slumped Friday after Beijing responded to the Trump administration's tariff hikes by saying it may order higher import duties on a range of US goods, ratcheting up fears of a trade war.

In New York, the Dow Jones industrial average lost 1.8 per cent or 425 points to 23,533, while the broader S&P 500 index fell 2.1 per cent to 2,588 points. The S&P 500 dropped 68.24 points, or 2.52%, to 2,643.69.

For the week, the Dow was down 5.67 percent, the S&P 500 was down 5.95 per cent and the Nasdaq was down 6.54 per cent, marking their biggest weekly percentage falls since January 2016.

The CBOE Volatility Index, the most widely followed barometer of expected near-term volatility in the S&P, was up 2.70 points at 20.56, near its session lows after hitting a three-week high of 22.70 earlier in the session.

Selling intensified into the close with the Dow losing more than 250 points in the final hour of trading.

President Donald Trump was expected to announce actions around midday Thursday in response to alleged Chinese theft of USA intellectual property.

The Dow is down almost 5 percent in 2018. Benchmark 10-year notes last rose 19/32 in price to yield 2.8372 percent, from 2.907 percent late on Wednesday.

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United States stocks were also hit when John Dowd resigned as Trump's lead attorney countering Special Counsel Robert Mueller's Russian Federation probe as the inquiry into possible collusion in the 2016 election intensifies. Hong Kong's Hang Seng lost 3.2 percent to 30,090.32 and the Shanghai Composite in mainland China sank 2.7 percent to 3,169.19. "The effects are likely to be felt more strongly in the United States and will increase both consumer and producer prices", wrote Hannah Anderson, global market strategist at J.P. Morgan Asset Management.

Trump said the tariff specifically targeting China was because Chinese companies were stealing the intellectual property of Americans.

Peter Donisanu, an investment strategy analyst for the Wells Fargo Investment Institute, said the events of the last few weeks show the Trump administration isn't hostile to trade necessarily, but wants to get other countries to revise the terms of America's trade deals.

Michael Block, chief strategist at Rhino Trading Partners, said in a report that Trump's tariff plan "has markets and the world at large freaking out a little".

"It could have been anything that caused it, it just happened to be trade", said Daniel Lockyer, senior fund manager at Hawksmoor Investment Management.

Investors also digested the U.S. Federal Reserve's latest monetary policy decision. The S&P tech index, already under pressure this week in the wake of the Facebook data scandal, fell 0.99 percent.

More worrying is that as the Fed raised interest rates for the sixth time since 2015, the markets do not appear to buy its optimism about the future, but rather they are seeing the seeds of the next downturn in the trade, security and domestic policies they are now observing.

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