Stocks rally but still see big weekly losses on threat of Trump trade war

Stock markets in North America recovered Friday from steeplosses earlier in the day as fears of a global trade war triggered by U.S. President Donald Trump's plan ofhefty tariffs on steel and aluminum started to wane.

Trump usedTwitter again on Friday to rant about the tariffs saying "trade wars are good and easy to win."

He went on to say Americans must protect their country and workers, adding in capital letters"IF YOU DON'T HAVE STEEL, YOU DON'T HAVE A COUNTRY!"

Backlash from his words were evident early on the equity markets, with the benchmark Dow Jones industrial average losing as much as nearly 400 points duringmorning tradingfrom Thursday's close.

But theindexrecovered some losses in the afternoon and closeddown only 71points or 0.3per cent to 24,538, while the broader S&P 500 index gained 0.5 per cent to2,691.

The tech-heavy Nasdaq composite led the upswing to finish higher by 1.1per cent at7,258.

But for the week, the Dow lost three per cent, the S&P 500 was down two per cent, while the Nasdaqfell one per cent.

Investorconcerns of more interest rate hikes from the Federal Reserveearlier in the week were replaced by fears ofTrump negatively impacting industries from automakers to construction companies.

"Perhaps the biggest risk to commodity markets and prices though is that this could represent the start of a more general ratcheting up of protectionist barriers as affected countries retaliate," saidCaroline Bain, commodities economist at research firm Capital Economics in a note.

"That said, we suspect that most countries will show restraint, for now, given that the tariffs have been limited to only two sectors."

But Reuters reported that European Union officials were considering applying 25 per centtariffs on about $3.5 billion US of imports from the U.S. if Trump implements histariffs plan.

U.S. Commerce Secretary Wilbur Ross tried to ease marketfears by saying the"hysteria over tariffs is a lot to do over nothing."

But it comes as investors were already nervous about the impact that rising bond yields and interest rates would have on equities. As interest rates rise, the value of existing bonds falls and borrowing to invest becomes more expensive.

The yield on the 10-year Treasury was upto 2.86 per cent from 2.81 per cent onThursday as investors fled to the safety of government bonds.

Crude oil prices were lower early in the day before rallying,with benchmark West Texas Intermediate closingup 26centsUS to $61.25a barrel in New York. But oil prices lost 3.6 per centfor theweekand have lost almost eightper cent since hitting a three-year high of $67 in late January.

Meanwhile, volatility in the markets also spiked inthe morning withthe CBOEVolatility Index, better known as the VIX, risingabove 25 to its highest level in almost three weeks. It's back down to the 20 level.

The VIX is considered the best gauge of expected volatilityon Wall Street.

Canadian reaction

In Canada, shares fell despite the government saying it would retaliate if Trump followed through on tariffs. Canada is the biggest exporter of steel and aluminum to the U.S.

The benchmark S&P/TSX composite index endeddown 0.06per cent to 15,385points, marking its fourth day of losses. It lost over two per cent for the week.

The loonie, meanwhile, weakened further after fourth-quarter economic growth came in below expectations.

The Canadian dollartradedat an average of 77.57cents US, down from Thursday's average price of 77.81 cents.

The economy grew at an annual pace of just 1.7 per cent from October to December pointing to a significant slowdown in growth.

"Essentially, the Canadian economy is holding it together with moderate growth in the wake of a very strong four-quarter surge from the third quarter of 2016to the second quarter of 2017, and that in itself is an accomplishment," said Derek Holt, economist at Scotiabank.

TSX-listedsteelmakerStelcoreversed earlier losses to close up 0.2 per centafter fallingover five per cent on Thursday.