NEW YORK (Reuters) - Global stocks were lower on Monday as investors eyed an escalating trade dispute between the United States and China while oil prices rose on bets that an OPEC production increase would be smaller than expected.
A jump in energy shares helped to limit losses in Wall Street’s major indexes, which had pared losses by late afternoon and long-dated Treasury yields turned positive.
U.S. President Donald Trump on Friday announced tariffs on $50 billion of Chinese imports, starting on July 6.
China said it would retaliate immediately by suspending previous trade agreements with Trump’s administration and slapping duties on American exports, including crude oil.
“The biggest thing hanging over markets is trade and the back and forth between the U.S. and China,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
“But, if people thought this was really going to be a trade war stocks would be down a lot more. The fact they’re down so little means that people think what the Trump administration is doing is part of their negotiating strategy.”
The Dow Jones Industrial Average .DJI fell 139.65 points, or 0.56 percent, to 24,950.83, the S&P 500 .SPX lost 9.2 points, or 0.33 percent, to 2,770.46 and the Nasdaq Composite .IXIC dropped 9.93 points, or 0.13 percent, to 7,736.45.
The energy sector was the S&P 500’s most positive boost with a 1 percent increase as crude oil futures reversed earlier losses to settle higher.
U.S. crude CLcv1 was last up 1.18 percent at $65.83 per barrel after earlier hitting a two-month low of $63.59 and Brent LCOcv1 was last at $75.35, up 2.6 percent on the day after falling to a six-week low of $72.45. [O/R]
The Organization of the Petroleum Exporting Countries, which is de facto led by Saudi Arabia, is due to meet in Vienna on Friday to decide production policy. OPEC and some allies including Russia have been restricting output since the start of 2017.
Bob Yawger, director of energy futures at Mizuho in New York said indications from OPEC members and other large producers on the scale of potential production increases would drive the market this week.
“Volatility is going to be pretty high this week,” Yawger said.
The pan-European FTSEurofirst 300 index .FTEU3 lost 0.80 percent and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 0.51 percent.
On top of trade, a potentially destabilising spilt in German Chancellor Angela Merkel’s governing coalition over a migration plan weighed on the euro and put further pressure on European shares.
U.S. 10- and 30-year Treasury yields turned positive in the late morning after falling for two consecutive sessions.
Benchmark 10-year notes US10YT=RR last fell 1/32 in price to yield 2.9278 percent, from 2.924 percent late on Friday.
The 30-year bond US30YT=RR last fell 7/32 in price to yield 3.0568 percent, from 3.047 percent late on Friday.
The immediate fallout from the trade dispute was limited in currencies although the escalation seemed to encourage some risk aversion as the safe-haven Japanese yen recovered from three-week lows against the dollar.
The dollar index .DXY, which measures the greenback against a basket of major currencies, fell 0.02 percent, while the euro EUR= was up 0.09 percent to $1.1617.
“It’s tough to say whether it will spiral further because it’s so fluid. It does weigh on sentiment at times,” said Eric Viloria, currency strategist at Wells Fargo Securities in New York. “Our base case is that there won’t be a trade war.”
However, the yuan CNH=D3 fell to 6.4600 per dollar, its weakest in five months in the offshore market.
The Japanese yen strengthened 0.15 percent, trading at 110.51 per dollar.
Additional reporting by Richard Leong, Gertrude Chavez-Dreyfuss and Jessica Resnick-Aut in New York, Aparajita Saxena and Ankur Banerjee in Bengaluru, Tom Finn in London and Hideyuki Sano in Tokyo; Editing by James Dalgleish and Tom Brown