U.S. stocks slipped on growing trade tension and after reports that Deputy Attorney General Rod Rosenstein will leave his post. Oil climbed and the euro rallied.
As a Justice Department shakeup threatened to increase political turmoil, industrial shares led U.S. equity indexes down after China warned it won’t meet with American officials unless they stop threatening to expand tariffs. Weakness in exporters was blunted by gains in tech shares and energy producers. Comcast Corp. plunged after agreeing to buy Sky Plc.
The euro gained and the region’s sovereign bonds dropped as European Central Bank President Mario Draghi predicted a pickup in underlying inflation. Treasuries edged lower. Automakers were the worst performers as the Stoxx Europe 600 fell.
An uptick in political tensions and the escalation in cross-Pacific trade tensions are testing global equities, which have posted two strong weeks of gains in part due to optimism that economies can weather any potential tariffs. JPMorgan Chase & Co. said it’s starting to factor into its strategy a growing potential for a “Phase III” of the tariff war next year affecting all Chinese imports, which would lead to weaker growth in the country and hit U.S. stocks.
“Geopolitical disruption can certainly grab headlines and rock capital markets in the short term,” said Kristina Hooper, chief global market strategist at Invesco Ltd. “However, I continue to caution that investors focus on the geopolitical disruption that actually has the potential to impact fundamentals – and that is trade. Everything else is just noise.”
Coming up this week is the Federal Reserve’s policy meeting that will likely see interest rates increased for the third time this year, with markets increasingly pricing for another one in December.
Stocks Fall on Rosenstein, Trade Risks; Oil Gains: Markets Wrap