Stock markets, oil slide on trade war fears as US tariffs bite

Stock markets, oil slide on trade war fears as US tariffs bite

Stock markets were in gloomy mode Tuesday as China, Mexico and Canada hit back at US tariffs and fears grew that Europe could be President Donald Trump's next target in the growing global trade war.

Wall Street had retreated almost 2 percent mid-session following steep losses the previous day while European stock markets closed down sharply and oil prices slumped, the price of Brent Crude plunging 2.4 percent to a five-month low of $69.94 amid worries a prolonged trade spat may knock the world economy out of kilter.

European equities took a similar buffeting as Frankfurt lost more than 3.5 percent for its worst session in almost three years. London shed 1.3 percent and Paris gave up 1.9 percent.

"The headlines surrounding an impending global trade war have become too loud to ignore on the once-booming trading floor of Frankfurt," noted Konstantin Oldenburger, analyst at CMC Markets.

"The sounds of trade disruptions are growing louder and are becoming increasingly difficult to ignore, even though Trump has yet to impose any direct tariffs against Germany or the European Union."

The main US oil contract, West Texas Intermediate, fell almost two percent to $69.04 a day after OPEC+ confirmed plans to hike oil output from April, amid pressure from Trump to lower prices.

"Investors don't like tariffs, and they are deeply uncomfortable with President Trump’s new world order, which is weighing on market sentiment," said Kathleen Brooks, research director at XTB trading platform.

US tariffs of 25 percent for Canadian and Mexican goods came into effect on Tuesday along with the doubling of levies on Chinese imports to 20 percent. The three countries announced retaliatory moves.

"The US administration is continuing to cause even more global upheaval and overnight by far the broadest set of tariffs yet has come into effect," said Deutsche Bank analyst Jim Reid.

But Reid added "there is still some market doubt as to whether all these tariffs will persist for a prolonged period of time."

The European Union warned that the tariffs on Canada and Mexico risk "disrupting global trade", urging Washington to reverse course.

"These tariffs threaten deeply integrated supply chains, investment flows, and economic stability across the Atlantic," said EU trade spokesman Olof Gill.

Amid fears the EU will be the next target, French Economy Minister Eric Lombard insisted that the bloc would be tough in negotiations.

"We have negotiators who are playing hardball, we will play hardball but... we need to reach a balanced deal to protect our economies," Lombard said.

China congress and eurozone rates

Bitcoin continued its recent nosedive as it dropped below $83,000 while the dollar came under pressure.

Traders have their eyes on other major economic events this week.

Investors hope China will announce a huge economic stimulus package at its annual parliamentary meeting, the National People's Congress.

On Thursday, the European Central Bank is expected to cut interest rates again to try to boost a floundering eurozone economy.

The key scheduled economic event Friday will be US jobs data.