By Alun John
LONDON (Reuters) -U.S. share futures dropped and bond yields rose on Wednesday after data showed the U.S. economy contracted in the first quarter, underscoring the disruptive nature of President Donald Trump’s often chaotic tariff policy.
Gross domestic product decreased at a 0.3% annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of first-quarter GDP, weighed down by a deluge of goods imported by businesses eager to avoid higher costs.
Nasdaq futures dropped nearly 2% after the data and S&P 500 futures lost 1.5%; both had been just in negative territory earlier in the day.
It will be a long day on Wall Street with “Magnificent Seven” members Meta Platforms and Microsoft’s results due after markets close.
“We got to these numbers because of Trump’s policies,” said Peter Cardillo, chief market economist, Spartan Capital Securities.
“They’ve created uncertainty and when you create uncertainty, nobody’s going to put their foot on the accelerator, and we’re seeing that as the earnings come out, right? Guidance has been pulled back.”
Longer-dated U.S. Treasuries also sold off after the data and the 10-year Treasury yield rose 3 basis points to 4.21%. The two-year yield was flat at 3.65%.
The GDP contraction was partly expected after data on Tuesday showed the U.S. goods trade deficit surged to an all-time high in March, prompting economists to sharply downgrade their GDP estimates.
PCE inflation, the Fed’s preferred gauge of price pressures, is due later in the day as well. The figure will be closely watched as it will give an indication of how much scope the Fed has to cut rates.
European shares also turned negative on the U.S. data and the broad Stoxx 600 was last down 0.2%.
There was also a batch of earnings for investors to digest on Wednesday, and European car companies were the latest to strike a downbeat tone.
Both Mercedes and Stellantis suspended their profit guidance due to the uncertain impact of the tariffs, echoing a move by General Motors the previous day. Swiss bank UBS also warned of an uncertain outlook.
Those worries came even as the mood music continued to suggest a slight softening of trade tensions.
Trump signed a pair of orders to soften the blow of his auto tariffs on Tuesday, and Commerce Secretary Howard Lutnick said he had reached one deal with a foreign power, though he declined to name it, saying it was pending local approvals.
In Europe there was also data showing the euro zone economy grew faster than expected in the first quarter.
OIL SLIPS
Oil extended earlier declines on the soft data, and Brent crude futures were down 1.4% to $63.3 a barrel, having tumbled 2.4% overnight. U.S. crude lost 1.36% to $59.6 per barrel. [O/R]
The key benchmarks are also set for their largest monthly drop in almost three and a half years, with Brent having lost 15% and WTI 16.5%.
In the mix on Wednesday was tariff fallout in China, where data showed factory activity contracted at the fastest pace in 16 months in April.
“The hit from sky-high U.S. tariffs meant the new export orders index dropped back to its lowest level, COVID-19 disruptions aside, since August 2012,” said Zichun Huang, a China economist at Capital Economics.
“The sharp drop in the PMIs likely overstates the impact of tariffs due to negative sentiment effects, but it still suggests that China’s economy is coming under pressure as external demand cools.”
The dismal figures hobbled a rise in Chinese shares, with the CSI300 blue-chip index reversing earlier gains to last trade 0.1% lower, but Hong Kong’s Hang Seng Index ticked up 0.5%. [.SS]
The higher U.S. yields did briefly give the dollar a nudge higher, but moves were fairly muted.
The euro was last down 0.1% at $1.1373, and the dollar was up 0.33% on the Japanese yen at 142.8.
(Reporting by Alun John; additional reporting by Rae Wee in Singapore; Editing by Kate Mayberry, Ros Russell, Philippa Fletcher)
