By Stephen Culp
NEW YORK (Reuters) -U.S. stocks joined a worldwide sell-off on Monday as fears that U.S. President Donald Trump’s tariffs on Canada, Mexico and China could ignite a global trade war, but their losses eased after tariffs on Mexican imports were paused.
All three major U.S. stock indexes veered sharply lower after the opening bell, but partially recovered after it was announced tariffs on Mexican imports would be paused for a month as Mexico’s president, Claudia Sheinbaum, agreed to reinforce its northern border.
Meanwhile, short-dated Treasury yields rose, indicating increased near term inflation risks.
“It’s an example of the uncertainty that investors have to deal with, because it’s unknown what kind of retribution there could be from other trading partners and how long it is likely to last,” said Sam Stovall, chief investment strategist of CFRA Research in New York.
“Trump knows that a trade war could develop into a very deep rat hole,” Stovall added. “And as a result, I think he will look to accept pretty much any offer that allows him to save face so I think this turmoil will likely end up being sharp but short.”
On the economic front, factory data showed U.S. manufacturing activity expanded for the first time since October 2022, and spending on residential construction projects rebounded.
“(These reports) could be taken negatively because they imply that the Fed has another reason not to be lowering rates anytime soon,” Stovall said. “Because if the economy is strengthening, that means that more stimulus would be inflationary.”
EUROPE TARIFFS?
The Dow Jones Industrial Average fell 147.56 points, or 0.34%, to 44,393.56, the S&P 500 fell 48.48 points, or 0.80%, to 5,992.05 and the Nasdaq Composite fell 244.58 points, or 1.25%, to 19,381.21.
European shares fell on fears that Trump’s opening tariff salvo could ignite a broader trade war. The U.S. president also warned Europe would be subject to higher tariffs, but offered little clarity on the matter.
MSCI’s gauge of stocks across the globe fell 10.35 points, or 1.19%, to 858.69.
The STOXX 600 index fell 0.93%, while Europe’s broad FTSEurofirst 300 index fell 17.47 points, or 0.81%.
Emerging market stocks fell 19.04 points, or 1.74%, to 1,074.33. MSCI’s broadest index of Asia-Pacific shares outside Japan closed lower by 2.08%, to 564.64, while Japan’s Nikkei fell 1,052.40 points, or 2.66%, to 38,520.09.
The U.S. Treasury yield curve flattened as short-dated yields rose amid tariff-related inflation fears.
The yield on benchmark U.S. 10-year notes fell 4.2 basis points to 4.525%, from 4.567% late on Friday.
The 30-year bond yield fell 5.6 basis points to 4.7561% from 4.812% late on Friday.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 0.3 basis points to 4.241%, from 4.238% late on Friday.
The dollar reversed its earlier gain against a basket of world currencies.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.45% to 109.02, with the euro down 0.81% at $1.0281.
Against the Japanese yen, the dollar weakened 0.3% to 154.71.
Bitcoin slid to a three-week low in tandem with global equities.
In cryptocurrencies, bitcoin fell 3.29% to $98,787.61. Ethereum plunged 17.99% to $2,720.68.
Oil prices pulled back from an earlier surge after tariffs on Mexican imports were paused.
U.S. crude fell 0.11% to $72.45 a barrel and Brent fell to $75.49 per barrel, down 0.24% on the day.
Gold touched a record high as tariff jitters prompted safe-haven spending.
Spot gold rose 0.43% to $2,813.21 an ounce. U.S. gold futures rose 0.89% to $2,837.50 an ounce.
(Reporting by Stephen Culp; Additional reporting by Nell Mackenzie, Editing by Amanda Cooper, Angus MacSwan and Alison Williams)
