Wall Street stocks finished solidly lower Wednesday on revived trade war fears, while oil prices surged to a fresh three-and-a-half year high following a bullish US petroleum inventory report.
Trade remained at the forefront of investor concerns, with markets cheering an announcement early in the day that President Donald Trump was backing off a plan to impose tough new restrictions on Chinese investment in the United States.
Trump said he instead supported efforts in Congress to strengthen the Committee on Foreign Investment in the United States (CFIUS) which provides oversight of proposed foreign investments in sensitive technologies.
But Trump retreated from a plan singling out China that had aroused fears of a major trade war and sent stocks tumbling earlier in the week.
US stocks opened higher, joining European equities. London, Paris and Frankfurt all finished about one percent higher.
But Wall Street reversed course at midday and finished firmly lower, with the Nasdaq putting in the worst showing, slumping 1.5 percent.
Analysts pointed to comments from White House economic advisor Larry Kudlow warning that tougher action on China was still being contemplated.
“The president is unsatisfied with their response on trade talks and so he put out there the possibility of additional tariffs,” Kudlow told reporters. “The ball is in their court.”
Art Hogan, chief market strategist at Wunderlich Securities, said the Trump administration had “a confusing message on trade, almost to the point where they’re making it up as they go along.”
It is unclear when or how the trade war fears will lift, he added.
“We don’t know what it is that’ll feel like a victory for anybody,” he said.
– Oil prices surge –
Oil prices rose sharply, with US benchmark West Texas Intermediate finishing at $72.76 a barrel, its highest level since November 2014.
Oil prices were boosted by weekly data showing a big drop in US oil supplies and by an outage at a key Canadian heavy-oil production facility due to power problems.
Those dynamics added to the pressure on crude after the US State Department on Tuesday warned US allies they would be hit with sanctions if they did not halt Iran oil purchases by November 4.
“For someone who has claimed to be unhappy about rising oil prices, the Trump administration sure has a funny way of showing it, or taking steps to achieve it,” quipped Michael Hewson at CMC Markets.
When Trump blamed OPEC for higher crude prices he was “rather overlooking the fact that if you take over 3.8m barrels of supply out of global production that tends to push prices up.”