By Eamon Quinn and Randall Jensen
European stocks ended mostly higher, but the threat of a possible escalation into a full-blown global trade war kept US stock markets on tenterhooks.
The equity losses in the early session in New York fed demand for US Treasuries, with the 10-year yield sliding to 2.85% at one point.
The dollar pushed higher, while the price of crude oil fell toward $60 a barrel in New York.
US investors also had their sights fixed on upcoming central bank decisions by the ECB later today, and in Japan, ahead of Friday’s US jobs report.
While the imposition of severe levies on steel and aluminium may come as soon as this week, speculation remains that the tariffs won’t spark a broader trade conflagration. The EU has said it will retaliate in kind, while China has so far remained largely quiet.
At the same time, Republican leaders in Congress have urged US President Donald Trump to target only specific items and countries, adding to hope that a broader crackdown on trade will be avoided.
“The knee-jerk reaction to any protectionist headline is going to be negative,” said Craig Birk, executive vice president of portfolio management at Personal Capital.
“But there’s a lot of momentum in the market in general, so the second there’s a pause in selling pressure, the tide is still upward,” he said.
In London, Chris Beauchamp, chief market analyst at IG, said that the resignation of Mr Trump’s chief economic adviser Gary Cohn late on Tuesday night hadn’t led to “the market rout that many feared”.
“Indeed, as the dust settled the question became not, why did he leave but why had he stayed so long when the tax reform battle had been won? It would have been a heroic effort indeed had he managed to persuade his boss that the tariff war was not a good idea, and instead has quit rather than fight an unwinnable battle,” said Mr Beauchamp.
Investors by buying the market had displayed “remarkable sangfroid” because the EU has yet to spell out any retaliatory action it may take, he said.
“While tariff wars remain the real threat to a broader market rebound, they seem to be having only a short-term effect for now,” he added.
In Dublin, shares in Smurfit Kappa surged again, while in London ad giant WPP shares fell as Procter & Gamble said it will cut back on spending with the big ad firms.
Irish Examiner and Bloomberg staff