Dow dips on China’s gambit

Beijing’s decision to let currency fall seen as sign of protracted trade battle

China introduced a powerful weapon to the trade war Monday, letting its currency weaken sharply in a move that left financial markets lurching and investors worried about how the worsening hostilities between Beijing and Washington would affect corporate profits and the already slowing pace of global growth.

On Wall Street, stocks experienced their steepest drop of the year, conclusively ending a period of steady trading during which the market notched record after record.

The recent calm was first punctured last week by President Donald Trump’s threat to impose new tariffs on $300 billion of imports from China. But it was Beijing’s decision to allow its currency to cross the psychologically important barrier of 7 per dollar that pushed investors to abandon any lingering hope that a trade truce — worked out in a face-to-face meeting between Trump and Xi Jinping, China’s leader, a little over a month ago — would hold.

“That has just totally disintegrated,” said Ryan Detrick, senior market strategist at LPL Financial. “Now China is just clearly firing back, and that has people

uncomfortable.”

The Dow Jones Industrial Average lost 767.27, or 2.9%, to 25,717.74, and the Nasdaq composite fell 278.03, or 3.5%, to 7,726.04.

The S&P 500 fell nearly 3% on Monday, the benchmark index’s sixth straight decline. The sell-off has lopped a significant chunk off this year’s market gains.

The rout on Wall Street followed an overnight selloff in Asian and European markets, prompted by a drop of more than 1% against the dollar for China’s tightly controlled currency, the renminbi.

A move of that magnitude is considered quite large in the currency markets. But it was especially notable for the yuan, also known as the renminbi, which China has kept from crossing 7 for more than a decade. The decision to let the currency’s value fall

was widely viewed as a signal that Beijing was girding for a protracted battle over trade, technology and economic hegemony with the United States.

The People’s Bank of China, in a bluntly worded statement Monday, tied the currency’s dip to Trump’s “unilateralism and trade protectionism measures and the imposition of increased tariffs on China.”

Monday, the state-run Xinhua News Agency reported that Chinese enterprises had stopped making purchases of U.S. agricultural products, citing Trump’s plan to increase tariffs on China as a “serious violation” of the consensus reached when he and Xi met in Japan, in June.

The apparent escalation in the dispute between Washington and Beijing hammered

share values across markets. Prices for commodities like copper, lead and iron, which are typically linked to the outlook for Chinese and global growth, fell.

Signs of economic softness also pushed investors to buy government bonds, raising prices and sharply driving down yields, which move in the opposite direction. On Monday, the yield on the 10-year Treasury note hovered near 1.74%.

The decline in long-term government bond yields suggests that investors are again downgrading their views of the economy.

It is accepted that the battle between the world’s largest economies has slowed the global economy, but investors are worried that it could begin to weigh on the less trade-dependent U.S. domestic economy,

which is experiencing its longest-ever expansion.

Unemployment remains at a 50-year low in the United States, but there are reasons for concern. The paces of both economic and job growth have slowed in recent months. Business investment has turned negative. On Monday, a key gauge of the services sector’s strength fell to its lowest level since late 2016.

JPMorgan Chase economists published a note saying that by some models, the risk of recession starting within a year is now 40%, based on the yield curve.

The concerns have also crept into the stock market. On Monday, the Russell 2000 index of small stocks, weighted toward more of the kind of domestically focused companies that had

been insulated from the trade battle, was also battered, dropping 3%.

The pain was worse for companies with particularly close ties to China. Wynn Resorts, which relies heavily on casino operations in Macao that cater to gamblers from mainland China, was among the worst-performing stocks in the S&P 500, tumbling 7.2%.

Technology stocks made up the hardest-hit section of the market, falling roughly 4%. Tech giants Microsoft (3.4%) and Apple (5.2%) both dropped sharply.

Selling was also heavy in shares of chipmakers, which generate significant revenue from sales to technology manufacturers based in mainland China. Nvidia fell 6.5%, and Micron Technology dropped more than 4.9%