BOSTON/LONDON :Some trade policy relief and strong bank earnings were not enough to keep Wall Street from pushing U.S. stocks down slightly on Tuesday, although U.S. government bonds and the dollar regained some ground after sharp declines last week.
U.S. President Donald Trump on Monday said he was considering a modification to the 25 per cent tariffs imposed on foreign auto and auto parts imports from Mexico, Canada and other places. That followed Friday’s move to exempt smartphones, computers and some other electronics from Trump’s “reciprocal” tariffs.
The main U.S. stock indexes ticked lower on Tuesday, even as Bank of America, Citigroup and Wells Fargo gained after the trio of banking giants posted strong profits for the first quarter. The Dow Jones Industrial Averageand the S&P 500 both dipped about 0.3 per cent, and the Nasdaq Composite fell 0.4 per cent.
“The market is eerily calm,” investment strategist Louis Navellier wrote in a note Tuesday. “It’s a bit unnerving after the rollercoaster ride we’ve been on since the tariff tantrum began.”
Outside the U.S., investors took whatever good news they could get after the recent heavy selling across markets and pushed shares higher. The pan-European STOXX 600 index rose 1.6 per cent on Tuesday, led by the autos and parts sector whose gauge jumped about 2.3 per cent.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1 per cent. Japan’s Nikkei rose 0.8 per cent, with shares of auto companies like Toyota and auto parts maker Denso among the top gainers.
Analysts remained cautious, however, as uncertainty over Trump’s trade policies, and his constant back-and-forth on tariffs, continued to cast a cloud over markets and the global economic outlook.
Darrell Cronk, president of the Wells Fargo Investment Institute, wrote in a note on Tuesday that the “final tariff menu remains unsettled” and will decide if there’s a recession or not.
“We should expect volatility to remain high, but last week proved the power of markets to push the administration not to break the financial system,” Cronk added. “Hence, we should have a floor for equities and a ceiling for rates.”
BOND YIELDS STEADY
U.S. Treasuries added to Monday’s gains on Tuesday after a manic selloff last week that led to the largest weekly increase in borrowing costs in decades. Bond yields move inversely to prices.
The benchmark 10-year yield fell about 4 basis points to 4.325 per cent, having fallen nearly 13 basis points in the previous session.
Federal Reserve Governor Christopher Waller said on Monday that the Trump administration’s tariff policies were a major shock to the U.S. economy that could lead the Fed to cut rates to head off recession even if inflation remained high. Atlanta Fed Bank President Raphael Bostic, meanwhile, suggested the U.S. central bank should stay on hold until there is more clarity.
Markets are now pricing in about 80 bps worth of monetary policy easing by the end of the year, with most expecting the Fed to hold rates next month.
The dollar gained on Tuesday, but still traded near a three-year low against the euro and a six-month trough against the yen, as investors trying to make sense of the constant changes to tariffs remained wary of U.S. assets. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, ticked up 0.4 per cent on the day.
“The U.S. exceptionalism narrative that had previously underpinned the surge in U.S. equity markets over the past couple of years, and boosted the dollar, has lost much of its shine,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.
Oil prices dipped after the International Energy Agency cut its oil demand forecast, having earlier been boosted by the latest tariff exemptions floated by Trump. U.S. crude fell 0.5 per cent to $61.20 a barrel and Brent dropped to $64.56 per barrel, also down 0.5 per cent on the day.
Spot gold rose 0.5 per cent to near its record high at $3,226 an ounce.
