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The major North American stock indices dipped sharply in Friday’s session in reaction to escalating U.S.-China trade tensions. Meanwhile, deteriorating global economic growth was top of mind at the annual meeting of central bankers from around the world at Jackson Hole, Wyoming.
At the Jackson Hole symposium U.S. Federal Reserve Board Chairman Jerome Powell said in a speech on Friday that the Fed is watching developments closely and that “Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”
In addition, China’s central government announced on Friday that it would impose two batches of new tariffs on US$75 billion of U.S. goods. The tariffs would be phased in on Sept. 1 and Dec. 15, coinciding with the implementation dates of tariffs on US$300 billion on Chinese goods. U.S. President Donald Trump fueled investor anxieties further by tweeting that U.S. companies should “immediately start looking for an alternative to China, including bringing...your companies HOME and making your products in the USA.”
Powell’s comments suggesting the possibility of lower rates ahead together with the escalating trade dispute caused investors to sell stocks and make a flight to safety, buying gold and bonds, with the result that the U.S. Treasury yield curve inverted, as yields on short-term U.S. Treasury bonds rose higher than yields on long-term issues at Friday’s close.
Stock markets sold off sharply on Friday with the S&P 500 dropping 2.6% and the Nasdaq Composite down 3.1%. The S&P/TSX Composite fell 1.3% on the day, led by losses in financial and energy stocks, which sank on a 2.6% drop in crude oil prices on Friday. But the gold sector was cushioned by the price of gold as investors sought safe-haven assets, with nearby gold futures contracts surging 2% on Friday, rising to US$1,538, a level not seen since 2013.
Friday’s market retreat pushed the big indices to weekly losses. Toronto’s S&P/TSX Composite Index retreated 0.7% on the week, while the U.S. blue-chip S&P 500 Composite Index dropped 1.4%. The technology-weighted Nasdaq Composite Index posted a 2.0% loss for the week.
| Index | Aug. 23, 2019 close | Day | Week | Year to date | |
|---|---|---|---|---|---|
| S&P/TSX Composite | 16,037.58 | -1.3% | -0.69% | 11.97% | |
| S&P 500 Composite | 2,847.11 | -2.6% | -1.44% | 13.57% | |
| Nasdaq Composite | 7,741.09 | -3.1% | -1.96% | 16.67% | |
| Gold (US$) | $1,538.20 | 2.0% | 0.96% | 20.20% | |
| Oil (WTI) (US$) | $53.91 | -2.6% | -1.75% | 18.72% |
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