Saturday 17 March 2018

Trump's threat to shut US government riles markets

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt
Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt

US stocks opened sharply lower on Wednesday, giving back some gains from a day earlier, after President Donald Trump warned of a government shutdown to build his proposed Mexico border wall and also threatened to scrap a trade agreement with Mexico and Canada.

"If we have to close down our government, we're building that wall," Mr Trump told supporters at a rally in Phoenix, Arizona on Tuesday evening.

The comments came as lawmakers in America face a late-September deadline to raise the US debt ceiling or risk a default, and hours after a lawmaker said there was "zero chance" of the US not raising the ceiling.

Mr Trump also said he might scrap the North American Free Trade Agreement with Mexico and Canada to jumpstart negotiations.

Investors have grown increasingly concerned about Mr Trump's ability to legislate his pro-growth agenda, especially those of tax cuts and infrastructure spending, given the near constant political rumblings in the White House since he was elected.

"The pullback is from pretty strong words out of the president ... comments on NAFTA, which brings up a question of a global trade war, is weighing," said Peter Cardillo, chief market economist at First Standard Financial in New York.

"You can have a tax cut, but if you have a trade war, that is going to impact the economic growth," Mr Cardillo said.

Investors are also jittery ahead of the annual gathering of global central bankers in Jackson Hole, Wyoming, where Federal Reserve Chair Janet Yellen's speech tomorrow will be scrutinized for clues on the central bank's stand on monetary policy.

In Europe, unloved media stocks weighed on European markets on Wednesday, led lower by sharp declines in advertising giant WPP after it cut sales forecasts on weakening demand.

Shares of advertising firm Omnicom dropped nearly 5pc, while Interpublic Group fell 4.3pc after WPP cut its sales forecast for the second time in six months. WPP'S US-listed shares sank 11.2pc.

The European single currency and euro zone government bond yields rose on Wednesday after a survey showed the bloc's manufacturing businesses had their best month of growth in six-and-a-half years.

Forecast-beating surveys in the eurozone's two biggest economies, France and Germany, helped pull the euro up against the dollar, which had wobbled against the yen overnight on comments from President Trump. (Reuters)

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