Aussie shares and Wall Street plunges as US-China trade war escalates

The Australian share market has been savaged, suffering heavy losses for a second consecutive day after a massive Wall Street sell-off.

The Australian share market is battered and bruised from the escalation of trade hostilities between the US and China, suffering heavy losses for a second consecutive day.

After a disastrous sell-off on Wall Street, the local market plummeted at the opening and only managed to rebound slightly through the session.

The benchmark S&P/ASX200 index lost 2.44 per cent to 6478 points, while the Aussie dollar moved up after 12 straight days of losses, buying 67.83 US cents, from 67.71 US cents on Monday.

The losses had returned the local indices to levels last seen on June 7, with companies on the broader All Ordinaries index reportedly losing $57 billion in market value by 10.45am alone.

The market turmoil appeared to flare up on Tuesday morning when the US Treasury Department said it had determined for the first time since 1994 that China was manipulating its currency.

Make that a 5% drop in the ASX and the plummeting drop in share values is accelerating this morning.

— 💧🌱Michael Springer (@MichaelSpring17) August 6, 2019

The massive sell-off in the US, which dropped the Dow Jones 1000 points at the closing bell, followed the ASX’s worst day of 2019 on Monday.

China let its currency, the yuan, drop to its lowest level against the US dollar in more than a decade, a move that US President Donald Trump railed against as “currency manipulation”.

It followed his own tweets last week that threatened tariffs on about $US300 billion ($444 billion) worth of Chinese goods, which would extend tariffs across almost all Chinese imports.

China’s central bank said in a statement that Monday’s weakness was mostly because of “trade protectionism and new tariffs on China”.

Just hours after the President’s tweet, the Trump administration officially designated China a “currency manipulator”.

The US will now engage with the International Monetary Fund to eliminate unfair competition from Beijing, Treasury secretary Steven Mnuchin said in a statement on Monday.

The US had not put China on the currency blacklist since 1994. The designation could pave the way for more US sanctions against China.

The escalations in the trade war between the world’s largest economies are rattling investors already unnerved about a slowing global economy, falling US corporate profits and possibly too-weak inflation.

Losses were steep and worldwide as the sell-off that began on Monday in Asia swept westward through Europe to the Americas.

Apple, Intel, Microsoft, Nvidia and Advanced Micro Devices (AMD) were among the biggest losers.

Investors in search of safety herded into US government bonds, which sent yields plunging lower.

US media is calling the plunge Wall Street’s “worst day of the year”.

China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!

— Donald J. Trump (@realDonaldTrump) August 5, 2019

Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the Tariffs – they are being paid for compliments of China, and the U.S. is taking in tens of Billions of Dollars! China has always....

— Donald J. Trump (@realDonaldTrump) August 5, 2019

A weaker yuan gives Chinese manufacturers a boost by making their products cheaper on worldwide markets for buyers using dollars or other currencies.

That hurts US manufacturers, which have already been hit by the slowing global economy.

It also adds more downward pressure on inflation, which some economists worry may be edging towards too weak.

In the worst-case scenario, falling prices encourage people and companies to hold off on buying things, which starts a vicious cycle of less and less economic activity.

Mr Trump, who has made the US trade war with China a centrepiece of his policy, defended the tariffs on Twitter.

“Based on the historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the tariffs — they are being paid for compliments of China, and the US is taking in tens of billions of dollars!

“China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!”

— with AAP

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