US and European stocks fell Tuesday on growing worries about a trade war as President Donald Trump replaced his secretary of state and was reportedly planning new tariffs on China.
US stocks opened higher after benign US inflation data reassured investors the Federal Reserve was not likely to accelerate interest rate hikes this year. But Wall Street began retreating later in the day.
"Wall Street is questioning the stability of the administration," said Sam Stovall of CFRA Research, adding that investors worry the Republicans could lose the midterm elections in November.
"Today, politics was more important than inflation."
Worries about trade also marred trading sessions in Europe, where both London and Frankfurt shed more than one percent and Paris dropped 0.6 percent.
Earlier, Tokyo retreated while Hong Kong was flat.
Trump sacked his top diplomat Rex Tillerson and named current CIA chief Mike Pompeo to succeed him, a worry to Wall Street analysts who viewed Tillerson as a fan of free markets and who fear Pompeo may take a harsher line on trade issues.
Analysts also pointed to unease at reports that Trump was weighing a crackdown on China over alleged intellectual property theft. US media reports on Tuesday indicated the administration was considering hefty new tariffs on the tech sector and that an announcement could come as soon as next week.
"The threat of such action against China has been present for some time, so the headline wasn't unexpected per se," said Briefing.com. "However, it did serve as a sobering reminder that the trade war issue is still simmering and could soon hit a boiling point if China decides to retaliate."
The dollar also pulled back, with analysts citing the reduced odds of aggressive Fed rate hikes and concerns about trade.
Tillerson "has been seen as a moderating voice for US foreign policy that helped to serve as somewhat of a counterpoint to Trump's impulsive and often abrasive attitude towards other countries," said James Chen of Forex.com
"Pompeo, on the other hand, is well-known for his views that mirror Trump's hardline stance on international political issues, including the Iran nuclear deal and North Korean regime change, and is seen as having a similar anti-globalist perspective," Chen said.
"Much of the risk of this hardline stance for the US dollar lies in the high likelihood that the top US diplomat will be yet another staunch supporter of Trump's protectionist trade policies.
- Key figures around 2100 GMT -
New York - Dow: DOWN 0.7 percent at 25,007.03 (close)
New York - S&P 500: DOWN 0.6 percent at 2,765.31 (close)
New York - Nasdaq: DOWN 1.0 percent at 7,511.01 (close)
London - FTSE 100: DOWN 1.1 percent at 7,138.78 (close)
Frankfurt - DAX 30: DOWN 1.6 percent at 12,221.03 (close)
Paris - CAC 40: DOWN 0.6 percent at 5,242.79 (close)
EURO STOXX 50: DOWN 0.9 percent at 3,391.14 (close)
Tokyo - Nikkei 225: DOWN 0.7 percent at 21,968.10 (close)
Hong Kong - Hang Seng: FLAT at 31,601.45 (close)
Euro/dollar: UP at $1.2387 from $1.2334 at 2200 GMT Monday
Pound/dollar: UP at $1.3965 from $1.3906
Dollar/yen: UP at 106.56 yen from 106.42 yen
Oil - Brent North Sea: DOWN 31 cents at $64.64 per barrel
Oil - West Texas Intermediate: DOWN 65 cents at $60.71