Stocks slumped, the dollar gained, and commodities slid as markets reeled from fresh salvos in the escalating trade war between the US and China.
The S&P 500 Index ended the longest rally in a month after the Trump administration said it will slap tariffs on an additional $200bn (€170.5bn) of Chinese products. China vowed to retaliate, helping to drive down shares across the world.
Metals bore the brunt of the reaction in commodities: Copper, nickel, and zinc all tumbled.
Trade-sensitive US shares led declines, with Caterpillar and Boeing slumping along with Freeport-McMoRan and Deere.
Emerging market equities fell almost 1% to halt a three-day climb. Brent crude oil fell $1.42 a barrel to $77.44.
“With tariff news moving once again to the front burner, market reaction abroad last night and early this morning underscores global market uncertainty as to the impacts of tariffs on economics and corporate profitability,” said Ernie Cecilia, chief investment officer at Bryn Mawr Trust.
“It also highlights clearly that short-term market movements, at the index level, are driven more so by headlines.”
By August 30, as the US nears mid-term elections vital for President Donald Trump’s legislative agenda, the White House will be ready to impose 10% tariffs on $200bn of Chinese-made products, ranging from clothing to television parts to refrigerators. The tariffs, together with some $50bn already in the works, stand to raise import prices on almost half of everything the US buys from China.
China has seven weeks to make a deal or dig in and try to outlast the US leader. The newest salvo in the trade war shattered the momentary calm in the markets that had sent the S&P 500 to the highest close since February. Investors in the US continue to be caught in a push and pull between corporate results, which begin to pile in this week, and the growing spectre of the trade war.
“It feels like we have been stuck in a ‘trade wars on, trade wars off’ for months now, and last night’s headlines about fresh US taxes on imports from China certainly fitted this game plan,” said Chris Beauchamp, chief market analyst at broker IG.
“The big question for investors is whether their fear of the damage done by tariffs outweighs their expectations of further global growth. While we have seen the S&P 500 knocked back once again from 2800, it remains within touching distance of this level.
“Perhaps trade wars are losing their ability to shock, or perhaps investors are more convinced after last week’s minutes that the Fed does have their back if things really do turn ugly.”
- Bloomberg, Irish Examiner