Saturday, 24 August, 2019

Eyes on Wall Street during U.S.-China tariff war

Dow plunges 700 points amid escalating trade war between US, China Stocks plunge as fallout from trade war with China hits markets
Russell Knight | 15 May, 2019, 05:12

The list of targeted goods ranges from TV cameras to tequila, and includes a range of agricultural products. This comes after President Donald Trump raised tariffs on Chinese imports last week. Trump's announcement of a summit with Xi has calmed investors for now. Caterpillar Inc. fell over four percent and Apple Inc. lost five percent.

It also accuses China of stealing intellectual property from USA firms. Asian markets were mixed.

The S&P 500 posted 12 new 52-week highs and 22 new lows; the Nasdaq Composite recorded 30 new highs and 151 new lows. The Dow and the S&P 500 each fell more than 2% as investors sold trade-sensitive shares.

Analysts have said investors should prepare for a more volatile stock market while the trade dispute deepens. But "this is more of a re-evaluation of stocks than it is a pure panic". The US economic growth momentum is expected to remain steady, while China has been showing signs of stabilizing in recent months; any significant deviation from those trajectories may add another layer of uncertainty to markets.

US 10-year Treasury yields, however, edged away from Monday's six-week lows, thanks to the slightly brighter tone. The president also stated that China had a "great deal" nearly finished but then they "backed out".

Of course, stocks are still lower than they were last week, following China's pledge to raise tariffs on USA goods. Trump followed through on his threat, raising levies from 10% to 25% on $200 billion worth of Chinese goods.

Trade war fears spooked USA investors, sending the Dow Jones Industrial Average and S&P 500 down at least 2%. Among the biggest losers on Monday was telecom giant Vodafone Group, which dropped 2.4% after reports the company was set to cut dividends.

"However, I think traders might underestimate the consequences if there is no deal and furthermore, tough trade negotiations between the USA and the European Union are still to follow later this year, which could spell new turmoil for stocks". "In the short term, it looks like volatility is here to stay and we could see this risk-off, risk-on going on for a long time".

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Some of those losses were mitigated on Friday after stocks staged a massive comeback, however.

Stocks saw a brief recovery on Friday after President Trump hailed talks with Chinese negotiators "constructive".

The VIX index remains higher than it's been for much of the past five years, but fear is considerably lower than it was during the market sell-off late last year sparked by worries about a possible recession.

"Investors are increasingly anxious an anticipated second-half profit rebound may now evaporate as President (Donald) Trump's threat to tariff the remaining $325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven United States economy", said Alec Young, managing director of global markets research at FTSE Russell.

"Their (sic) is no reason for the US consumer to pay the Tariffs, which take effect on China today", Trump tweeted.

White House Economic Advisor Larry Kudlow explained, "We don't think the Chinese have come far enough".

"Furthermore, as there isn't a clear schedule for meetings between Chinese and USA negotiators, markets are likely to be more volatile". This article is strictly for informational purposes only. It is not investment advice or a solution to buy or sell securities.

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