(New throughout, updates prices, market activity, comment; adds
Trump on EU trade deal)
* European stocks drop 2.5%, biggest daily fall in 2019
* Interest rate futures price in Fed rate cut in Sept
* Oil prices rebound from biggest daily drop in years
By Rodrigo Campos
NEW YORK, Aug 2 (Reuters) - A measure of stocks across the
globe was on track to post its largest weekly loss of the year
on Friday while yields in U.S. and German debt were near
multi-year lows, after China vowed to retaliate against a
possible new round of U.S. tariffs.
Oil prices bounced back from losses that exceeded 7% the
previous session and the yen scaled further against the dollar a
day after its strongest daily gain in over two years.
The moves followed a sharp Wall Street selloff triggered by
U.S. President Donald Trump's threat Thursday to impose a 10%
tariff on $300 billion worth of Chinese imports.
China did not specify how it would retaliate, but analysts
have said options include tariffs, a ban on export of rare
earths used in everything from military equipment to consumer
electronics, and penalties against U.S. companies in China.
The trade war between the world's largest economies has
already dislocated global supply chains and slowed economic
growth. The abrupt escalation capped a critical week for global
markets after the U.S. Federal Reserve delivered a widely
anticipated interest rate cut but played down expectations of
many more ahead.
"The tariff threat was a splash of cold water. The market
had become accustomed to the current state of U.S-China trade
negotiations, but a hike in tariffs wakes you up to the fact
that the trade war is still with us," said Michael Antonelli,
market strategist at Robert W. Baird in Milwaukee.
The Dow Jones Industrial Average .DJI fell 188.95 points,
or 0.71%, to 26,394.47, the S&P 500 .SPX lost 28.59 points, or
0.97%, to 2,924.97 and the Nasdaq Composite .IXIC dropped
132.18 points, or 1.63%, to 7,978.94.
The pan-European STOXX 600 index .STOXX lost 2.46% and
MSCI's gauge of stocks across the globe .MIWD00000PUS shed
1.30%.
Emerging market stocks lost 2.12%. MSCI's broadest index of
Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 1.94%
lower, while futures in Japan's Nikkei NKc1 lost 1.09%.
MORE FED CUTS SEEN
U.S. data on Friday showed employment growth in July slowed
as expected, which along with trade turmoil may encourage the
Federal Reserve to cut interest rates again in September.
"On balance it is probably a slightly dollar-negative
(employment) number because (it) increases the case for a Fed
rate cut in September. We're already at the point where we're
trading that," said Greg Anderson, global head of foreign
exchange strategy at BMO Capital Markets in New York.
A further 25-basis-point cut by the Fed is priced in for the
central bank's September meeting while the chance of another cut
in October is roughly 1-in-2 according to Fed futures markets.
Safe-haven assets were bid across markets with German
10-year government bond yields DE10YT=RR dropping to an
all-time low of -0.502% and the country's entire government bond
yield curve turning negative for the first time ever.
Benchmark 10-year notes US10YT=RR last rose 10/32 in price
to yield 1.8571%, from 1.892% late on Thursday. They fell to
1.832% earlier, the lowest since November 2016.
"In the grand scheme of things, it will become clearer and
clearer that the Federal Reserve has started an easing cycle and
will have no choice but to cut rates further," said Akira Takei,
fund manager at Asset Management One.
In currency markets the Japanese yen JPY= , which on
Thursday gained the most in over two years against the dollar,
further strengthened 0.74% to 106.58 per dollar.
The Swiss franc reached a two-year high of 1.0907 EURCHF=
against the euro, which bounced back from a two-year low of
$1.1027 earlier in the week. The common currency EUR= was
recently up 0.23% to $1.1109.
The British pound held near a 30-month low versus the dollar
as the governing Conservatives' majority in parliament was
reduced to one seat, three months before the country is due to
leave the European Union. Sterling GBP= was last trading at $1.2159, up 0.23% on the
day.
U.S. crude CLc1 rose 3.02% to $55.58 per barrel and Brent
LCOc1 was last at $61.78, up 2.12% on the day.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
GRAPHIC-$1 trillion wiped off global equities https://tmsnrt.rs/33gSkzo
GRAPHIC-Global assets in 2019 http://tmsnrt.rs/2jvdmXl
GRAPHIC-Global currencies vs dollar http://tmsnrt.rs/2egbfVh
GRAPHIC-Emerging markets in 2019 http://tmsnrt.rs/2ihRugV
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>