Stock Market Today: Stocks lower as trade war risk grips global markets

U.S. equity futures edged lower in early Tuesday trading, while the dollar slumped to a multi-month low and Treasury bonds rallied, as investors reacted to the prospect of a damaging global trade war following a series of tariffs put in place by President Donald Trump.

New levies on goods from Canada, Mexico and China, which could collectively impact around $2.2 trillion in global trade, went into effect at midnight, with both Canada and China outlining reciprocal tariffs on U.S. goods that will be imposed over the coming weeks. 

"With the recent one-month reprieve on these tariffs seen as a sign that they were purely designed to extract action on further strengthening of borders, their sudden implementation has been met with an immediate response and sharply escalates the risk of an all-out global trade war between America and the rest of the world," said Lindsay James, investment strategist at London-based Quilter Investors.

The move followed a sharp decline in U.S. stocks tied to the tariffs risks, which also appear to have sparked renewed inflation pressures in the world's biggest economy while weighing on consumer sentiment and slowing manufacturing demand. 

President Trump is also planning so-called reciprocal tariffs on U.S. trading partners that will start next month, and yesterday unveiled plans to impose export duties on American agricultural products.

The S&P 500 tumbled more than 100 points into the close last night, falling 1.76% on the session and slipping into negative territory for the year, while the Nasdaq shed nearly 500 points and the Dow slumped 650 points. 

The Atlanta Fed's GDPNow tracker suggests a current-quarter contraction of 2.8%, a nearly four-point swing from last week's update and a worrying indication that the economy faces recession risks tied to the President's policies. 

At the same time, data from the ISM's benchmark survey of manufacturing activity showed the biggest jump in factory gate prices in nearly three years, as well the largest decline in new orders in more than two years.

Global market reaction has been swift, with investors marking the U.S. dollar index down to its lowest levels since early December and benchmark U.S. Treasury bonds rallying on the prospect of weaker domestic growth and potentially lower Federal Reserve interest rates.

Related: U.S. consumers are wilting under renewed stagflation risks

Benchmark 10-year note yields were last marked at 4.159%, around 2 basis south of last night's levels, with 2-year notes trading at 3.927% heading into the start of the New York session.

On Wall Street, stocks are poised for a modestly weaker open, but are likely to sharply increased volatility with the CBOE Group's VIX index trading at a two-month high of $23.08, suggesting daily swings of 1.44%, or 84 points, for the S&P 500. 

Futures contracts tied to the benchmark suggest a modest 4 point opening  bell decline, while those linked to the Dow Jones Industrial Average are priced for a 30 point pullback.

The tech-focused Nasdaq, meanwhile, which is now down 5% for the year, is priced for a 5 point bump. 

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In overseas markets, European stocks slumped 1.1% in mid-day Frankfurt trading amid the trade war worries and the threat of tariffs on goods from the European Union, while Britain's FTSE 100 fell 0.28% in London. 

Overnight in Asia, the export-focused Nikkei 225 fell 1.2% by the end of the session in Tokyo, while the regional MSCI ex-Japan benchmark fell 0.32% into the close of trading. 

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