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Wall Street stocks sank on Tuesday, briefly pulling the S&P 500 into a so-called correction, as Donald Trump’s latest trade broadside against Canada fanned investor fears over the economic fallout from his protectionist agenda.
The S&P 500 was down as much as 1.5 per cent by mid-afternoon, taking the benchmark’s losses since it hit an all-time high less than three weeks ago to more than 10 per cent. It later rebounded to trade 0.6 per cent lower.
The recent Wall Street sell-off had briefly paused on Tuesday morning, but was reignited after Trump took to social media to announce an additional 25 per cent tariff on steel and aluminium imports from Canada, one of the US’s biggest trading partners.
The Vix index, a measure of expected volatility in US stocks, rose above 29, its highest point since August.
“There’s a huge reset going on right now and a lot of trepidation in the market,” said Dec Mullarkey, managing director at fund manager SLC Management. “Recession risk is getting real, it’s amping up.”
The Nasdaq Composite reversed earlier declines to trade flat, a day after it fell 4 per cent in its worst session in two-and-a-half years.
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In Europe, the Stoxx Europe 600 closed down 1.7 per cent, while Germany’s Dax fell 1.3 per cent.
The US dollar, which has been dragged lower by concerns over the health of the world’s biggest economy, fell 0.7 per cent against a basket of six trading partners and is down nearly 5 per cent since the start of the year.
The euro rose 1 per cent to $1.094, meaning it has now recovered almost all of its losses since the US election, as investors continued to bet on a better growth picture for Europe on the back of Germany’s “whatever it takes” spending plan announced last week.
The single currency was helped by the start of talks between US and Ukrainian delegations in Saudi Arabia that Kyiv hopes can pave the way for peace, and hopes that a defence deal in Germany will be sealed soon, said analysts.
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Investors “just want to trade the positive narrative for euro at the moment”, said Kamal Sharma, an FX strategist at Bank of America.
The euro has had a lightning rally this month and saw its best week against the dollar since 2009 last week, as investors have increased growth expectations for the Eurozone and trimmed expectations for interest rate cuts by the European Central Bank.
Additional reporting by Ray Douglas
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