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Stocks fall as US inflation worries add to trade war concerns

Stocks fall as US inflation worries add to trade war concerns

Wall Street was set to continue its recent losses in world stocks, while gold, a safe haven asset, reached another record on Friday as Donald Trump's latest tariff salvo fueled fears of a full-blown trade war.

The latest inflation figures were a source of frustration for U.S. traders, but Trump's 25% auto import tariffs and his plans to impose even more levies in the coming week continued to be a cause for concern.

S&P futures were lower. Europe's STOXX 600 was on track for a weekly decline of 1% thanks to a drop of 2% in the auto and parts sector. Japan and Korea, home to giants such as Toyota Honda and Hyundai, both fell roughly 2% over night.

Michael Metcalfe, State Street's global macro strategy head, said that the U.S. auto tariffs were more aggressive than anticipated. This is especially true since Washington's neighbors like Mexico and Canada have not been adjusted.

Metcalfe stated, "I don't know if the hawkishness in the auto tariffs will translate into the broader tariffs we are going get next week." "And this is keeping the risk appetite on the backfoot."

On currency markets, the U.S. dollar has been moving sideways since core U.S. The Federal Reserve's preferred measure of prices, Personal Consumption Spending data, increased at a faster rate than the 0.4% monthly increase.

Daniela Sabin-Hathorn, of Capital.com, said that the unexpected rise in core inflation indicates persistent price pressures. "Especially because the full impact is unlikely to be reflected in the data just yet.

Quarter Back

Many analysts predicted that the dollar would perform well this year because of Trump's "America First". The dollar has had a very bad start to the year, and is currently at its lowest level since the global financial crisis of 2008.

The greenback has struggled, and the euro has benefited from this. The euro slipped to $1.077 as German consumer confidence data revealed the uncertainty in Europe's biggest economy. However, it is still higher than the previous year.

The yen was slightly stronger at 150.5 dollars. The Bank of Japan is expected to raise interest rates again, which will help it achieve a gain of nearly 4% in the next quarter.

These expectations were reinforced on Friday when data revealed that core consumer inflation in Tokyo increased in March.

The money markets increased their bets for future rate cuts by the European Central Bank due to tariff tensions and after March's inflation data in France and Spain was lower than expected.

Traders see 80% of a ECB 25-basis point (bps) rate cut in April, up from 50% a week earlier. German Bund yields

It seems likely that the ECB's conclusion that downside risks are manifesting from escalating tensions in trade is correct, said Christoph Rieger a Strategist at Commerzbank.

PUNCTURED

Wall Street was preparing for a lower opening after the inflation data.

Volvo, Volkswagen Audi, Mercedes-Benz, and Hyundai, among others, have already announced that they will move portions of their production to avoid Trump's tariffs. Ferrari, which manufactures all its cars in Italy said that it would increase prices by as much as 10% on certain models.

Hong Kong's Hang Seng fell overnight as traders awaited clarity about Trump's China tariffs.

He said he was willing to lower the tariffs for Beijing in order to reach a deal with ByteDance, the Chinese parent company of TikTok to sell the app. Trump's "reciprocal" tariffs are the focus of attention. He is expected to announce them on April 2, which he has called "Liberation Day".

"It's not surprising that the tariff talks are causing another round of risk off," said Thierry Witzman, global FX & Rates Strategist at Macquarie. He added that tariffs are likely to be both "growth-restraining and inflation-producing".

Oil prices in commodities were flat, as traders weighed the tightening crude supply and new U.S. Tariffs on their impact on the global economy.

Brent crude futures are at $74 per barrel, an increase of more than 2% over the past week.

The gold price has reached a new high as the trade war threat drives investors to the metal of safety. After the gains of the day, it is now at $3.065 an ounce. It is up over 17% for the quarter, its best performance since 1986.

Michael Brown, Senior Research Strategist at Pepperstone, said: "Continued demand for haven assets, combined with central bank purchases by EMs in an attempt to diversify FX reserve, makes for a compelling bull case."

(source: Reuters)