NEW YORK (Reuters) - The dollar and global stock markets fell on Monday after U.S. President Donald Trump said he would restore tariffs on some imports from Brazil and Argentina, with losses exacerbated by a slide in new U.S. factory orders in November to their lowest since 2012.
European shares posted their biggest daily drop in two months as the tariff threat overshadowed encouraging data on the Chinese and euro zone economies. Investors worried Trump would target Europe again.
Last week, MSCI’s gauge of global stock markets had approached a record high on hopes Beijing and Washington will hammer out a “phase one” trade deal this year.
For a graphic on MSCI world stocks index:
The dollar posted its biggest decline against the euro since mid-September as the weak U.S. manufacturing data and an unexpected drop in U.S. construction spending in October rekindled worries about a slowing economy.
Data from the Institute for Supply Management (ISM) showed the U.S. manufacturing sector contracted for a fourth straight month in November as new orders slid.
European equities were also pressured by a World Trade Organization ruling on European Union subsidies to European planemaker Airbus (AIR.PA), which supported the U.S. case for retaliatory tariffs.
Germany's export-sensitive DAX .GDAXI stock index tumbled 2.1%, its biggest single-day decline since early October, when the WTO approved U.S. moves to slap import tariffs on $7.5 billion worth of European goods.
MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.61%, while the pan-European STOXX 600 index lost 1.58. Wall Street also fell, though not as hard as Europe.
Trump’s tweets triggered selling that accelerated on the weaker-than-expected data, said Fawad Razaqzada, market analyst at Forex.com in London.
“It’s a number of reasons coming in all at the same time,” Razaqzada said. “But with the stock markets at record high levels, this is always going to happen. Markets go up in stairs and then on the way down, it’s an elevator.”
For a graphic on Global assets in 2019:
The major U.S. indexes last week hit record highs while MSCI’s index of equity markets in 49 countries rose to one point below an all-time high established in January 2018.
The Dow Jones Industrial Average .DJI fell 268.37 points, or 0.96%, to 27,783.04, the S&P 500 .SPX lost 27.11 points, or 0.86%, to 3,113.87 and the Nasdaq Composite .IXIC dropped 97.48 points, or 1.12%, to 8,567.99.
ISM said its index of U.S. factory activity dropped 0.2 point to a reading of 48.1 in November. A reading below 50 indicates contraction in factory output, which accounts for 11% of the U.S. economy. The index needs to break below 42.9 to signal a recession.
The dollar dropped from six-month highs against the Japanese yen and slid to a two-week trough versus the euro after the U.S. manufacturing report.
The rally in equities has been predicated on economic recovery and Monday’s data belied that trend, said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.
Holiday sales may provide the market upside.
For a graphic on World FX rates in 2019:
“There’s going to be plenty of good news to go around,” Ablin said. “We could get some really solid news to carry this market at least for the next week or so,” he said.
Markets also were pressured by a report showing U.S. construction spending unexpectedly fell in October as investment in private projects tumbled to the lowest in three years.
Benchmark 10-year U.S. Treasury notes US10YT=RR fell 13/32 in price to push yields up to 1.8206%.
Oil jumped above $61 a barrel, supported by hints that the Organization of the Petroleum Exporting Countries and allies may agree this week to deepen output cuts, while rising Chinese manufacturing activity suggested stronger demand.
U.S. crude CLcv1 gained 79 cents to settle at $55.96 a barrel and Brent LCOcv1 added 43 cents to settle at $60.92.
Germany’s borrowing costs rose after the Social Democrats (SPD) chose new leaders critical of their ruling coalition, with yields on benchmark 10-year debt set for the biggest one-day spike in nearly three months.
Benchmark German bond yields jumped across the board, with 10-year yields DE10YT=RR up more than 7 basis points to -0.273%, their highest in nearly three weeks.
U.S. gold futures GCv1 settled 0.2% lower at $1,469.20.
For a graphic on MSCI All Country Wolrd Index Market Cap:
Reporting by Herbert Lash; Editing by Dan Grebler, Nick Zieminski and David Gregorio