US-China Trade Deal Fears and Rising Rates Put Dampener on Global Rally

A strong week for global stocks has ended on an uncertain note at a time of fears over delays to resolve the American trade dispute with China and concerns over rising US interest rates.

The FTSE 100 closed down 18 points on Friday, while Wall Street dropped in afternoon trading in New York after the release of strong jobs market data that could push the US Federal Reserve towards raising interest rates next month.

The US added 250,000 jobs in October – in the last jobs report before president Donald Trump faces midterm elections on Tuesday – while wages grew at their fastest rate for close to a decade. A disappointing Christmas sales forecast from Apple also dragged technology stocks lower.

Analysts said the figures suggested further tightening in the labour market that could encourage the Fed to raise interest rates, which could trigger a renewed sell-off in the stock market.

Investors have become increasingly concerned in recent months that an increase in borrowing costs could act as a drag on the world economy.

Markets rallied over the course of the week, recovering some of the losses incurred during October, which was one of the worst months for financial markets in recent years.

Almost $2tn (£1.5tn) was wiped off Wall Street stocks last month, while the FTSE 100 slipped below 7,000 for the first time in six months as it entered correction territory, which is defined as a drop of 10% from its previous peak.

Although markets have not clawed back all of their losses, the FTSE 100 gained more than 150 points over the course of the week. It closed down 0.3% on Friday to end the week at 7,094.

The Dow Jones industrial average was down more than 200 points – just under 1% – on Friday afternoon after having rallied by more than 700 points since the start of the week.

There was apparently positive news for global markets as Trump tweeted that he had held a “good conversation” with the Chinese president, Xi Jinping, while he also signalled that both countries were making progress towards settling their trade dispute.

However, observers sounded a note of caution that the timing of Trump’s comment could be intended to boost Wall Street before the midterm elections.

Craig Erlam, senior market analyst at the currency trading firm Oanda, said: “Trump has been a cheerleader of the markets since his election victory and the timing of the sell-off will have really frustrated him.”

Analysts are also sceptical that the dispute can be easily resolved, while saying it stands to drag down the volume of world trade and trigger a slowdown in the global economy.

Economists at Swiss bank UBS said: “[The] US-China tensions run deep and will require more than a cheerful phone call to resolve.”

Gregory Daco, chief US economist at the consultancy firm Oxford Economics, said the American economy faced a “triple policy threat from fading fiscal stimulus, tightening monetary policy and increasing protectionism [that] will bring US GDP growth from a resilient 3% in 2018 below 2% in 2020”.