U.S. stocks fell sharply Tuesday, their latest volatile reaction to Washington doubling down on its threats to increase tariffs on Chinese goods, heightening trade tensions.
The threats hit shares of trade-exposed companies, and concerns that new tariffs could weaken demand for oil sent energy prices and companies lower.
The Dow Jones Industrial Average slid 340 points, or 1.3%, to 26105 while the S&P 500 fell 1.4% and the tech-heavy Nasdaq Composite lost 1.6%.
Tech companies were among the biggest laggards, as they stand to be hurt by weakened sales in China, a country in which they do much of their business. Companies that manufacture products in China also stand to see their costs rise. The S&P 500 tech sector dropped 1.5% in recent trading.
U.S.-traded crude oil fell 2.5% to $60.71 a barrel, though prices were likely also supported by tensions in the Middle East that risked limiting oil supply.
In Europe, auto and oil-and-gas companies dragged the pan-continental Stoxx-Europe 600 down 1.4%.
“The market will be pretty volatile in the next week or two reacting to headlines and comments and tweets,” said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute.
The declines follow a surprise pair of tweets by President Donald Trump on Sunday announcing an increase in tariffs on Chinese goods set to come into force Friday. Other White House officials echoed Mr. Trump’s threats late on Monday. U.S. Trade Representative Robert Lighthizer said his side had seen “an erosion in commitments by China” in recent days and declared tariffs on Chinese imports would rise on Friday as Mr. Trump had warned.
The key question for investors was whether U.S. threats marked a serious escalation in trade tensions or whether it was intended to secure more concessions from China.
The threats came after months of calm and mostly positive headlines emerging from the U.S.-China trade talks. The announcement prompted sharp declines for markets across the globe, and traders and analysts said they expect lots of swings in stocks in the next several trading sessions.
Many investors expected a trade deal to emerge, and that is reflected in current stock-market values, said Mr. Wren, adding that because of this “if the trade deal falls apart, the market will go lower.”
In Asia, indexes performed better after China’s Commerce Ministry said Vice Premier Liu He will visit Washington to continue trade talks on Thursday and Friday. The move comes after initial reports suggested the talks could be delayed or canceled altogether.
The Shanghai Composite rose 0.7% while the Hang Seng gained 0.5%. Japan’s Nikkei closed down 1.5%, however, as it played catch-up with other indexes after reopening following an extended period of holiday closures.
The trade discussions “had fallen out of people’s risk scenarios and I think the market reaction speaks for itself,” said Geoffrey Yu, head of the U.K. Investment Office at UBS Wealth Management. “For all investors around the world, this one came out of the blue.”
While U.S. indexes had started Monday’s session sharply lower, they regained ground over the course of the day to close modestly down. The turnaround came as investors reasoned that Mr. Trump’s threats might just be a negotiating tactic, analysts said. Beijing’s decision to attend talks in Washington this week bolstered those hopes.
“The fact that from the outset the U.S. said they still expect [Vice Premier] Liu He to be there, which was confirmed this morning, means that both sides still want to reach some kind of accommodation and it’s still in both sides interest to reach some kind of accommodation,” said Mr. Yu.
“Given that markets won’t want to be caught wrong-footed again, they are willing to countenance any scenario at this point.”
The dollar was largely flat, while U.S. government bond prices rose slightly. The yield on the benchmark 10-year U.S. Treasury note was at 2.480% after settling at 2.498%. Bond yields and prices move inversely.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
https://www.wsj.com/articles/global-markets-cautious-after-trade-tensions-buffet-stocks-11557216793
2019-05-07 14:48:00Z
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