NEW YORK: Equities, Treasury yields and the dollar fell on Monday (March 10) as concerns about the health of the US economy weighed on investors’ appetite for risk.
A gauge of Asian shares dropped as equity futures contracts for the S&P 500 declined as much as 1.1 per cent in early trading while those for the tech-heavy Nasdaq 100 sank even more. Treasury yields slipped across maturities as investors sought the safety of fixed income assets.
Oil fell to near the lowest since September as weak economic data from China compounded a dour outlook for demand. A gauge of the dollar declined for a sixth consecutive day, the longest losing streak in a year, as confidence in further US economic outperformance faltered. Bitcoin extended its drop to a fifth session.
Tariffs on major trading partners, a higher unemployment rate and federal workforce job cuts are raising the prospect of a slowdown in growth in the world’s largest economy after outperforming China and Europe for months. Bond traders are signaling an increasing risk that the US economy will stall, while President Donald Trump said the economy faces "a period of transition.”
"It’s getting harder to make out the shape of the economy through the fog of Trump 2.0’s firings and tariffs,” said Ed Yardeni, president of Yardeni Research. "No wonder the stock market’s default position is risk-off and stocks have been correcting.”
Traders have been piling into short-dated Treasuries, pulling the two-year yield down sharply since mid-February, on expectations the Federal Reserve will resume cutting interest rates as soon as May to keep the economy from deteriorating. The movement marks an abrupt about-face for the Treasuries market, where the dominant driver of the last few years had been the surprising resilience of the US economy even as growth weakened overseas.
Federal Reserve Bank of San Francisco President Mary Daly said growing uncertainty among businesses could slow demand in the US economy but doesn’t require a change in interest rates. Fed Chair Powell also acknowledged a rise in uncertainty for the US economic outlook on Friday. Furthermore, he expected the path to two per cent inflation to continue, suggesting price hikes from tariffs may be temporary.
"We turn tactically cautious on risk assets,” JPMorgan Chase & Co analysts led by Fabio Bassi wrote. "The increase in policy uncertainty over the past couple of weeks, the volatility around a potential Russia/Ukraine ceasefire, and the unprecedented new information around the German/EU fiscal plans triggered an extremely volatile fortnight with abrupt adjustment of positions.”
Wall Street strategists have been debating whether the Trump administration would be swayed on its tariff plans as stocks tumble. The thinking being that Trump will ditch policies if the stock market - which he touts as a report card - drops and rattles investors. Various firms even mapped out how much pain Trump could tolerate in the S&P 500 Index before retreating. That index level became known as "the Trump put,” in reference to a put option.
"It’s Trump’s cavalier approach to economic policy that’s rattling sentiment,” said Kyle Rodda, a senior analyst at Capital.com in Melbourne. "He is genuinely focused on significant, structural change to the economy - even if it comes at the expense of short-term growth. This completely flies in the face of a pretty critical axiom in the markets - that there is a pretty tight 'Trump put' that would always support the stock market.”
European share markets and the common currency got a fillip from Germany moving away from fiscal austerity and the region ramping up military defenses. Euro Stoxx 50 futures pointed to a higher open on Monday.
US job growth steadied last month, with nonfarm payrolls increasing by 151,000 in February after a downward revision to the prior month, data on Friday showed. The unemployment rate climbed to 4.1 per cent.
"Friday’s jobs report was weaker than expected, which is concerning because this report doesn’t account for the recent government job cuts from DOGE,” said Glen Smith, chief investment officer at GDS Wealth Management.
In Asia, China’s consumer inflation dropped far more than expected to fall below zero for the first time in 13 months as deflationary pressures persisted in the economy. Investors will now be looking for signs that the government’s stimulus is translating into stronger domestic demand.
"China’s latest inflation data didn’t do market confidence any favors,” said Tim Waterer, chief market analyst at KCM Trade in Sydney. "However, markets may take solace from the hope that it spur new stimulus” from the central bank, he said.
Separately, China said it will impose retaliatory tariffs on imports of rapeseed oil, pork and seafood from Canada as the trade war escalated. Canola futures sank by the exchange limit.
In Canada, Mark Carney won the race to become the country’s next prime minister.
Elsewhere in commodities, gold rose for the week as traders sought haven from the market uncertainty. - Bloomberg
