U.S. stock market falls on plunging retail sales, China-U.S. tensions; oil up

NEW YORK (Reuters) – U.S. stocks sank on Friday after data showed a surprisingly sharp dive in retail sales and as investors worried about increased Sino-U.S. trade hostilities, while signs of a pick-up in crude demand boosted oil prices.

The U.S. Commerce Department said retail sales, a significant portion of the economy, plunged 16.4% last month, the biggest decline since the government started tracking the figures in 1992. That data followed a historic 20.5 million job losses last month.

“From bad to worse to worst, the U.S. economy is in the midst of an outright economic free-fall,” said market analyst Christopher Vecchio at Dailyfx.com. “Despite what the U.S. Treasury yield curve has been signaling – less than a 20% chance of a recession within the next 12-months – it’s obvious that fears of a major economic contraction are well-founded.”

Still, oil prices rose to their highest levels in more than a month on signs that demand from China is picking up and data showing China’s industrial output in April expanded for the first time this year.

Economic fears were heightened by news that the Trump administration ramped up tensions with China by moving to block shipments of semiconductors to Huawei Technologies. China responded, saying it would put U.S. companies on an “unreliable entity list.”

The Dow Jones Industrial Average fell 79.65 points, or 0.34%, to 23,545.69, the S&P 500 lost 9.12 points, or 0.32%, to 2,843.38 and the Nasdaq Composite dropped 20.18 points, or 0.23%, to 8,923.55.

A broad measure of European stocks was set to end the bruising week roughly 4% lower, the biggest weekly fall since the mid-March rout as the coronavirus crisis spread worldwide.

MSCI’s world stock index, a touch softer on Friday, was down around 2.8% this week and also set for its biggest weekly drop since March.

Analysts called the weekly decline a natural correction after a rally since mid-March, which also reflected growing concerns about rising U.S.-China tensions.

On Thursday, U.S. President Donald Trump signaled a further deterioration in his relationship with China over the novel coronavirus, saying he had no interest in speaking to President Xi Jinping and suggesting he could even cut ties with Beijing.

“There is no doubt that the optics around the trade/diplomacy backdrop have worsened in the last week and this has had a negative influence,” Chris Bailey, European strategist at Raymond James in London, said.

U.S. Federal Reserve Chair Jerome Powell has brushed off the notion that the Fed could push negative rates after futures tied to Fed interest rate policy expectations began pricing a small chance of sub-zero U.S. rates within the next year.

Benchmark 10-year notes last fell 9/32 in price to yield 0.646%, from 0.619% late on Thursday.

The dollar index rose 0.11%, with the euro up 0.1% to $1.0815.

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