Dow set to fall as Europe slows, trade war escalates

US stock futures in the red

By Anneken Tappe, CNN Business
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Traders work at the New York Stock Exchange (NYSE) on in New York City.

(CNN) - The Dow tried to eke out a gain on Friday, recovering at the end of a topsy-turvy week.

The stock index turned positive with less than an hour of trading left in the day. The Dow is up 23 points, or 0.1%.

Weakness in the European economy and a still-escalating trade war sent bond yields down once again — and stocks along with them for most of the session.

President Donald Trump said Friday the United States had no choice but to take stern actions against China.

"We're not ready to make a deal, but we'll see what happens," the president said.

Trump also said the United States is "not doing business with Huawei." The White House has reportedly been considering an extension of its ban on Huawei.

China priced the yuan lower once again Friday, and the trade war has no end in sight.

Stocks were in the red and extended losses after Trump's comments. The S&P 500 is down 0.3%. The Nasdaq Composite declined 0.6%.

All three indexes are on track to finish the week lower, and the Dow is looking at a 0.4% weekly loss. By Thursday's close, the S&P and the Nasdaq had retraced their loses from earlier in the week, but the Dow was still lagging behind. Monday was the worst day of the year for the three stock benchmarks.

The 10-year US Treasury yield is tending lower again. The US government bond yield dropped to a three-year low Wednesday as investors bought bonds as a safety investment amid the market turmoil. This change in risk sentiment put pressure on stocks. Yields rebounded Thursday.

On the economic data front, the US producer price index for July advanced 0.2%, in line with expectations and flat at 1.7% on the year. This measure of inflation still tracks below the Federal Reserve's target rate of 2% and reflects a slowing down in manufacturing activity amid weaker global demand.

In Europe, stocks closed in the red after the UK economy contracted for the first time since 2012 in the second quarter, and Italy's Deputy Prime Minister Matteo Salvini called for fresh elections.

Equities finished lower down across the board, with Germany's DAX leading losses of more than 1%. Italian bond yields jumped higher, showing that investors aren't confident in Rome resolving its problems. In May 2018, trouble in Italy's government along with worries about the country's financial health and the impact on the European economy triggered a selloff in US stocks.

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