World stock markets fall on trade fears and rate hike worries

World share indexes registered their biggest weekly declines in almost six months in a volatile session on Friday as investors weighed solid US economic data against expectations for higher interest rates and US trade tensions on multiple fronts.

US job growth accelerated in August and wages notched their largest annual increase in more than nine years, cementing expectations for a third US Federal Reserve interest rate hike for the year in late September.

The US dollar was boosted by the data, but investors were jittery about US trade relations after President Donald Trump said he could hit China with more tariffs and alluded to trade talks with Japan while Canada negotiations continue.

Wall Street stocks ended lower, dragged down after Trump threatened tariffs on a further $267 billion worth of Chinese imports, on top of levies on $200 billion worth of goods that Trump promised could go into effect “very soon.”

China has warned of retaliation if Washington launches any new measures.

“If these tariffs go into effect, (China) may have to cushion the economy by devaluing its currency again,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. “That will push the US dollar higher, which puts more pressure on emerging markets. It will also have a negative effect on US exporters.”

Trump also said the United States and Japan have begun trade talks and that Tokyo “knows it’s a big problem” if an agreement cannot be reached.

Meanwhile, Canada’s top trade negotiator said she and her US counterpart were making “very good progress” in talks to save the North American Free Trade Agreement.

The Dow Jones Industrial Average fell 79.33 points, or 0.31%, to 25 916.54, the S&P 500 lost 6.37 points, or 0.22%, to 2 871.68, and the Nasdaq Composite was down 5.3 points or 0.07% at 7917.25.

For the week, the S&P fell 1.03%, the Dow lost 0.19%, and the Nasdaq fell 2.55% in its biggest weekly decline since late March.

The pan-European FTSEurofirst 300 index rose 0.05%. MSCI’s gauge of stocks across the globe shed 0.28% on the day and 4.4% for the week, marking its biggest weekly drop since mid-March.

One bright spot was emerging market stocks, which rose 0.28%, the indexes’ first daily gain since August 28. MSCI’s broadest index of Asia-Pacific shares outside Japan had closed 0.34% lower hitting a 14-month low during the session.

The dollar index rose 0.37%, with the euro down 0.52% to $1.156.

US benchmark Treasury yields rose to their highest levels in almost a month after the higher-than-expected increase in wages raised expectations of higher inflation.

Benchmark 10-year notes last fell 17/32 in price to yield 2.9388% compared with 2.877% late on Thursday.

Oil prices were steady with US crude slipping on the weak equity markets while Brent inched up on geopolitical factors, such as violent protests in Iraq. US West Texas Intermediate crude futures settled down 2 cents at $67.75 per barrel. Brent crude futures settled up 33 cents at $76.83 a barrel.