Stocks slide as US-China trade fears ‘rattle’ financial markets

Oil prices fall on global growth concerns

NEW YORK, Aug 5, (RTRS): Stock markets around the world fell hard and the Chinese yuan weakened to an 11year low on Monday as fears of an escalation in the US-China trade war jolted financial markets.

China on Monday let the yuan tumble beyond the key 7-per-dollar level for the first time in more than a decade, in a sign Beijing might be willing to tolerate further currency weakness in the face of an escalating trade row with the United States.

Safe-haven assets, including the Japanese yen, government bonds and gold rallied as investors sought to cut back on riskier assets.

Against the Japanese yen, which investors tend to buy in times of risk aversion, the US dollar fell 0.38% to its lowest since a January flash crash.

The sharp moves in financial markets come after US President Donald Trump stunned investors last week by vowing to impose 10% tariffs on the remaining $300 billion of Chinese imports from Sept 1, abruptly breaking a brief monthlong ceasefire in the bruising trade war.

On Monday, MSCI’s All Country World Index, which tracks shares in 47 countries, extended its slide from last week to dip 1.89% on the day, close to a two-month low.

On Wall Street, the main indexes fell sharply led by technology companies.

The Dow Jones Industrial Average fell 489.78 points, or 1.85%, to 25,995.23, the S&P 500 lost 55.68 points, or 1.90%, to 2,876.37 and the Nasdaq Composite dropped 200.40 points, or 2.5%, to 7,803.67.

The pan-European STOXX 600 index fell 2.13%, putting it on pace for its largest two-day decline in over three years.

Worries about a slowdown in global growth due to an extended trade conflict hurt oil prices.

Brent crude futures were down $1.53, or 2.47%, to $60.36 per barrel, while US West Texas Intermediate (WTI) crude futures were down 0.97 cents, or 1.74%, to $54.69 a barrel.

Concerns about the outlook for trade lifted gold to a more than six-year high on Monday. Spot gold was up 1.12% at $1,456.55 per ounce.

US Treasury yields tumbled on Monday with 10-year yields hitting their lowest level since November 2016, as fears over escalation of trade US-Chinese tensions renewed concerns about an economic downturn, spurring safehaven demand for bonds.

The yields on benchmark 10-year Treasury notes were down 8.8 basis points at 1.7667%.

US

Wall Street’s main indexes fell sharply on Monday, led by technology companies, as China’s willingness to let the yuan slide in response to the latest US tariff threat fanned fears that it could further aggravate an ongoing trade war.

China let the yuan breach the key 7-per-dollar level for the first time in more than a decade on Monday, and President Donald Trump slammed it as “a major violation”.

Trump stunned financial markets last week by threatening to impose 10% tariffs on the remaining $300 billion of Chinese imports, abruptly abandoning a brief ceasefire.

On Friday, the benchmark S&P 500 and the Nasdaq suffered their worst weekly performance of 2019, in a week that also saw the US Federal Reserve’s cut interest rates for the first time in a decade.

At 9:50 am ET, the Dow Jones Industrial Average was down 505.65 points, or 1.91%, at 25,979.36, the S&P 500 was down 59.19 points, or 2.02%, at 2,872.86.

The Nasdaq Composite was down 213.46 points, or 2.67%, at 7,790.61.

All of the 11 major S&P sector were in the red. The S&P technology sector, heavily exposed by its chipmakers and other global technology players to Chinese markets, dropped 3.2%.

Apple Inc slid 4.1% as analysts expected the newly proposed tariffs to hurt demand for its flagship iPhone, while the Philadelphia chip index slipped 3.5%.

Industrial bellwethers Boeing Co and Caterpillar Inc shed more than 2%.

Signals from the bond market were also daunting as the inversion of the yield curve between the three-month Treasury bill and 10-year bonds grew to the widest since April 2007.

Interest-rate sensitive banks dropped 3%.

The CBOE Volatility index, a gauge of investor anxiety, rose to its highest level in about three months at 21.71 points.

The rest of the high-flying FAANG group also lost ground. Facebook Inc, Amazon.com Inc, Netflix Inc and Google-parent Alphabet Inc were down between 2.3% and 2.7%.

UK

Britain’s stock market indexes shed 1.5%, joining a selloff in global markets on Monday, as US-China trade tensions sent investors scurrying to safe-haven assets, while Ocado and M&S slipped after sealing a deal to set up an online food joint venture.

All sector constituents on the bluechip FTSE 100 and the mid-cap FTSE 250 were in the red by 0805 GMT, with both indexes hitting a more than eightweek low.

Markets have been alarmed and investor sentiment damaged after President Donald Trump said last week he would slap 10% tariffs on $300 billion in Chinese imports, prompting China to vow retaliation.

Retailer Marks & Spencer and online supermarket Ocado fell about 4% each, following their online food venture deal that will result in the termination of Ocado’s current deal with Waitrose.

The FTSE 100 in May posted its only monthly loss so far this year as the trade dispute escalated, before Washington and Beijing called for a truce. That, along with a slump in the pound over no-deal Brexit fears, has since helped the index post back-to-back monthly gains.

Europe

European shares joined a China-driven global sell-off on Monday, dragged down heavily by commodity-linked stocks as anxiety over trade frictions with the United States sent the country’s yuan below 7 per dollar for the first time in a decade.

The pan-European STOXX 600 index fell 1.5%, adding to a 2.5% fall on Friday, its worst day so far in 2019, as traders dumped stock investments in favour of perceived safe-havens like government bonds.

The latest batch of selling dates back to US President Donald Trump’s threat late last week to slap 10% tariffs on another $300 billion in imports from China, abruptly ending a month-long truce in the trade war.

Commodities-linked stocks bore the brunt of the hit, falling 3% as China’s offshore yuan hit a record low, making it expensive for the world’s biggest copper consumer to buy dollar-denominated metals.

Beyond the resources sector, chipmaker AMS lost around 6% in the sell-off and luxury retailer LVMH, also heavily exposed to China, fell 2.7%.

Asia

Asian stock markets fell for a third day Monday after China allowed its yuan to sink to an 11-year low following President Donald Trump’s latest tariff threat.

Tokyo’s main index fell 2.1% and Hong Kong’s benchmark lost 2.9%. Shanghai, South Korea and Australia also retreated.

China’s central bank allowed the yuan’s exchange rate to sink below the politically sensitive level of seven to the US dollar. That level has no economic significance but might fuel trade tension with Washington, which complains a weak currency swells Chinese exports and hurts foreign competitors.

The People’s Bank of China blamed the decline on “trade protectionism,” a reference to Trump’s tariff hikes in a fight over Beijing’s trade surplus and technology policies.

Tokyo’s Nikkei 225 fell to 20,641.25 and Hong Kong’s Hang Seng fell to 26,140.47. Seoul’s Kospi was 2.5% lower at 1,948.97.

The Shanghai Composite Index dropped 0.9% to 2,842.91 and Sydney’s S&P-ASX 200 retreated 1.8% to 6,646.20. India’s Sensex lost 1.7% to 36,491.55. New Zealand, Taiwan and Southeast Asian markets declined.

Traders were watching Hong Kong, one of the biggest global trading centers. Airline flights and traffic were disrupted by protesters’ calls for a general strike over complaints about a proposed extradition law and other grievances.

Oil

Oil prices fell on Monday on global growth concerns after US President Donald Trump last week threatened China with more tariffs, which could limit crude demand from the world’s two biggest buyers.

Brent crude futures were down $1.31, or 2.12%, at $60.58 per barrel by 1420 GMT.

US West Texas Intermediate (WTI) crude futures were down $0.87, or 1.56%, at $54.79 a barrel.

“The escalation of trade measures only reinforces concerns over global economic growth and hence by extension global oil demand growth,” said Harry Tchilinguirian, global oil strategist at BNP Paribas in London.

A lower yuan would raise the cost of dollar-denominated oil imports in China, the world’s biggest crude oil importer.

Signs of rising oil exports from the United States also pressured prices on Monday. US shipments surged by 260,000 barrels per day (bpd) in June to a monthly record of 3.16 million bpd, US Census Bureau data showed on Friday.

The US weekly oil rig count, an indicator of future production, fell for a fifth week in a row as most independent producers cut spending even though majors were still pushing ahead with investments in new drilling.

Iran’s seizure of an Iraqi oil tanker raised some concerns about potential Middle East supply disruptions in the Gulf, with Iranian state media reporting on Sunday its Iranian Revolutionary Guards had seized the ship for smuggling fuel.

Currencies

China let its yuan weaken below 7 to the dollar on Monday, an 11-year low, leading to broad risk aversion on concerns about the escalation of the USChina trade war. Fearful of the impact on global growth, investors dumped export-oriented Asian currencies and rushed into safe havens,with the Japanese yen surging to a seven-month high. Chinese authorities, who had been expected to defend the psychologically important level of 7 per dollar, allowed the currency break through the floor to its lowest in the onshore market since the 2008 global financial crisis. The weaker Chinese currency came after Beijing vowed on Friday to fight back against US President Donald Trump’s decision to impose 10% tariffs on $300 billion of Chinese imports, ending a month-long trade truce. Trump on Monday called the move in the Chinese currency “a major violation” and “currency manipulation.” The escalation of the trade dispute has led investors to be on watch for any US efforts to weaken the greenback, though a direct intervention is still viewed as unlikely. Japan’s yen, which investors buy in times of risk aversion, rose to its highest since a January flash crash.

The yen was last up 0.5% at 106.05, after hitting 105.80 earlier. Japan’s top currency diplomat, Yoshiki Takeuchi, warned that Tokyo was ready to intervene if yen gains threatened its exportreliant economy.