Stocks around the world dropped Monday after the sudden intensification of U.S.-China trade tensions, sowing fears the conflict could spill over into slower economic growth.
U.S. futures and stock markets in Asia and Europe were lower, oil prices fell and the Chinese yuan weakened after President Trump threatened to ramp up U.S. tariffs on $200 billion in Chinese imports to 25%, up from 10% currently. That put an accord between the two countries in doubt ahead of a new round of talks set to begin this week in Washington.
China’s delegation was preparing to go to the U.S. for the talks, the foreign ministry spokesman said Monday, adding that the Chinese government hoped both sides could work together to reach an agreement after threats repeatedly rose in the past.
U.S. futures pointed to opening losses of 2% and 1.9% for the Dow Jones Industrial Average and S&P 500, respectively.
The Shanghai Composite Index fell 5.6%, while its counterpart in Shenzhen tumbled 7.4%, both registering their biggest single-day declines since 2016.
Europe’s pan-continental Stoxx Europe 600 lost 1.5%. All national benchmarks in the region, except for London’s FTSE 100, which was closed for a public holiday, were in the red.
Hong Kong’s Hang Seng Index dropped more than 3%. WH Group, the Chinese owner of American pork producer Smithfield Foods, tumbled more than 7% to a five-week low.
“Risks have clearly increased and we see a one-in-three chance that the Sino-U.S. trade talks break down,” said Eli Lee, head of investment strategy at Bank of Singapore.
In Europe, individual equities, banks, automotive suppliers and insurance companies clocked the biggest losses. Telecoms bucked the trend, edging higher, buoyed by Telenor AS A adding 4.3% after the Norwegian telecoms provider said it was in merger talks over its Asian business with Malaysian telecom conglomerate Axiata Group Berhad . All Stoxx 600 components, bar four equities, were trading lower in midday trading.
The moves—following months of tranquil and generally rising markets—showed investors are still sensitive about the possibility of deteriorating commercial relations between the world's two largest economies.
Monday’s drops come after months of relative calm, after a turbulent 2018 left investors scarred. Stocks, bonds and credit markets rose in 2019, with U.S. equities recently touching all-time highs. The S&P 500, for example, added 18% this year. Markets observers had said optimism about U.S.-China trade talks helped underpin that climb.
“This is not good news for Chinese companies that are already dealing with headwinds from high indebtedness, slowing domestic growth, and now tougher external conditions as well as the rest of the world,” said Trinh Nguyen, a Hong Kong-based senior economist for emerging markets at Natixis . “Particularly for countries that rely on China demand such as South Korea, Germany, and Australia.”
Indeed, nearly 200 companies in the Shanghai Composite fell by the maximum 10%, while nearly 380 stocks in the Shenzhen Composite were down by a similar measure.
Brent crude, the global oil benchmark, slid 1.3% to $69.95 a barrel, while West Texas Intermediate lost 1.6% falling to $60.94 a barrel.
“Trump’s latest tweet on trade talks with China has sparked a risk-off environment,” said Giovanni Staunovo, a commodity analyst at UBS in Switzerland, adding that concerns of slowing global economic growth and subsequently lower oil demand weighed on prices.
Investors edged into safe assets, with gold adding 0.2% to $1283.50 a troy ounce, and the Japanese yen adding 0.4% against the greenback.
Later in the week, U.S. data on the trade deficit and inflation are expected. Investors are eager for any signs that could dispel or confirm whether the global economy is indeed slowing down or not.
Elsewhere, the WSJ dollar index, which tracks the currency against a basket of 16 of its peers, added 0.2%. Yields for U.S. Treasurys were flat at 2.523%. Yields move inversely to prices.
—Saumya Vaishampayan and Shen Hong contributed to this article.
Write to Joanne Chiu at joanne.chiu@wsj.com and Steven Russolillo at steven.russolillo@wsj.com
https://www.wsj.com/articles/global-markets-tumble-after-trumps-threat-to-raise-tariffs-on-china-11557108903
2019-05-06 10:43:00Z
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