3-7-18 5:29 AM EST | Email Article
By Riva Gold and Gregor Stuart Hunter 
   -- U.S. stock futures are sharply lower 
   -- Government bonds gain 
   -- Canadian dollar, Mexican peso are under pressure 

Economic adviser Gary Cohn's resignation from the White House hit world stocks and the currencies of U.S. trade partners Wednesday, as many investors judged the news meant President Donald Trump was pushing forward with planned tariffs.

Futures pointed to a 1% opening fall for the S&P 500 and a 1.3% drop for the Dow Jones Industrial Average, with shares of heavy machinery maker Caterpillar leading declines in premarket trading.

The Stoxx Europe 600 fell 0.3% late morning as the auto and basic resources sectors -- seen as some of the biggest losers from escalating trade friction including proposed U.S. tariffs on steel and aluminum -- led declines.

Mr. Cohn had served as Mr. Trump's top economic adviser for 14 months and was widely seen as pro-business by market participants. He said late Tuesday he would resign, days after Mr. Trump surprised his senior staff by announcing steel and aluminum tariffs that Mr. Cohn had opposed.

"There is an assumption there has been a disagreement somewhere and the hottest issue is tariffs," said Russ Mould, investment director at AJ Bell. Mr. Cohn's departure "suggests to me the president is determined to get his way on steel and aluminum duties," although there is a sense that many other senior Republicans are also opposed to the measures, he added.

In Europe, mining and metals giants, which had been seen as particularly at risk from the tariffs, also were hit by a decline in commodity prices. Shares of Glencore were off 2.7% and Rio Tinto fell 2%.

Brent crude oil was last down 1.2% at $64.99 a barrel.

The Canadian dollar recently was down 0.5% against the U.S. dollar and the mexican peso is down 0.7%.

"I don't think this thing with steel is ultimately going to result in a trade war," said Said Haidar, chief executive at hedge fund investment firm Haidar Capital Management. "The real question is, is there a read on from this to Nafta, does [Mr. Trump] go after Chinese intellectual property...does he go down this road further and further and do you start getting retaliatory effects?" he said.

In Asian trading, Japan's Nikkei Stock Average ended the session down 0.8% with the yen climbing and commodities-related stocks, banks and auto makers sagging.

Mr. Cohn's resignation is bad news for markets, said Robert Gillam, chief executive at McKinley Capital. "Gary Cohn is well-regarded in the investment community and we are likely to see some short-term negative sentiment" from his departure, he noted.

Hong Kong's Hang Seng and the commodities-heavy S&P/ASX 200 in Australia both fell 1%.

"I've gone from being a little bit relaxed about the trade-war thing to being quite a lot more nervous," said Kay Van-Petersen, global macro strategist at Saxo Bank. "People are not giving it as much weight as they should be...I don't think people are really thinking this through."

Haven assets rose Wednesday on the uncertainty in U.S. policy, with the 10-year Treasury yield falling to 2.856% from 2.877% in late New York trading. Yields move inversely to prices. The yen, which tends to appreciate in times of market stress, was up 0.5% against the U.S. dollar.

South Korea's Kospi fell 0.4% as optimism about North Korea being open to talking about giving up its nuclear weapons was offset by worries about global trade.

Write to Riva Gold at riva.gold@wsj.com and Gregor Stuart Hunter at gregor.hunter@wsj.com


(END) Dow Jones Newswires

March 07, 2018 05:29 ET (10:29 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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