'Scorned lover': Wall Street plunges as stocks hit by trade concerns

US stocks have plunged, with the Dow Jones Industrial Average tumbling almost 800 points, as a litany of concerns wiped out the rally in risk assets.

Trade-sensitive shares sank as angst mounted that the US and China made no meaningful progress on the trade front this weekend.

Financial shares got hammered as the yield curve continued to flatten, with the latest nudge from a hawkish comment by a Federal Reserve official.

The Dow Jones Industrial Average fell 799.36 points, or 3.1 per cent, to 25,027.07, the S&P 500 lost 90.31 points, or 3.24 per cent, to 2700.06 and the Nasdaq Composite dropped 283.09 points, or 3.8 per cent, to 7,158.43.

Losses accelerated and trading volumes in S&P 500 futures spiked after contracts broke below their 200-day moving average. Adding to the risk aversion was news that British Prime Minister Theresa May's push to avoid a so-called "hard Brexit" may be at risk.

"Today's move feels like the market is a scorned lover. It had believed, for whatever reason, that progress was being made at the G20 and that turns out to be murky - it feels lied to," Michael Antonelli, a managing director at US financial services firm Robert W Baird & Co, said.

"Then a pile of negative Brexit news, [Federal Reserve Bank of New York president John] Williams starts to ramp up hawkish talk, then we have our yield curve acting like it got run over and boom, we puke."

'Boom, we puke': Traders on the floor of the New York Stock Exchange.Credit: Bloomberg

US President Donald Trump also concerned investors with comments declaring that his team of trade advisers led by China trade hawk US Trade Representative Robert Lighthizer would determine whether a "REAL deal" with China was possible.

We will get it done but if not remember, I am a Tariff Man.

Donald Trump

"If it is, we will get it done," Trump said in a Twitter post. "But if not remember, I am a Tariff Man."

"The negotiations with China have already started. Unless extended, they will end 90 days from the date of our wonderful and very warm dinner with President Xi in Argentina."

Earlier on Tuesday, US Treasury Secretary Steven Mnuchin also raised the prospect of the deadline extension.

"So, again this will be a real agreement again and not that we can accomplish everything in 90 days but we expect to make a lot of progress," Mnuchin told Fox Business Network.

Trump and Xi said they would hold off on imposing additional tariffs for 90 days starting on December 1 while they sought to resolve their trade disputes that have seen the flow of hundreds of billions of dollars worth of goods disrupted by tariffs.

Trump has said China is supposed to start buying agricultural products immediately and cut its 40 per cent tariffs on US car imports.

While Trump hailed the agreement with Xi "an incredible deal", a lack of detail from the Chinese side has left investors and analysts wondering if Trump's exuberance is warranted.

"It doesn’t seem like anything was actually agreed to at the dinner and White House officials are contorting themselves into pretzels to reconcile Trump’s tweets (which seem if not completely fabricated then grossly exaggerated) with reality," JPMorgan Chase said in a trading note.

Mnuchin and Mr Trump's top economic adviser, Larry Kudlow, dialled back expectations and added qualifiers when asked about the outcome of talks between Trump and Xi.

Kudlow said in a television interview that the White House did not yet have a deal with China to reduce tariffs on US-made cars.

The statement was a reversal from a tweet by the President, who said over the weekend, "China has agreed to reduce and remove tariffs on cars coming into China from the US."

Officials in Beijing declined to comment on the tweet and have not confirmed such an agreement.

"Yes, there is a halt in tariffs," said Delores Rubin, senior equities trader at Deutsche Bank Wealth Management. "[But] we haven't resolved anything yet."

Washington also expected China promptly to address structural issues including intellectual property theft and forced technology transfers, US officials have said.

The appointment of Lighthizer to lead the talks instead of Mnuchin puts one of the administration's toughest China critics in charge.

In the US Treasury market, all eyes remain on the yield curve after three-year yields climbed above those of their five-year peers on Monday, potentially foreshadowing the end of the Federal Reserve's tightening campaign. The more closely watched part of the curve - the gap between two-year and 10-year yields - remains upwardly sloped.

"Any breakthroughs on trade also brings the Fed back into the picture," Dan Skelly, Morgan Stanley equity model portfolio solutions head, said on Bloomberg TV.

"If you look at the market the last week or so you saw the market pop on both the dovish Fed - or a perceived dovish Fed, if you will - as well as the trade headlines.

"And it's hard to have both, in our opinion. And so these positive updates potentially on trade just bring the Fed back even faster."

Here are some of the key events global investors will be watching this week:

• US financial markets are set to close Wednesday for a national day of mourning to honour the late president George H.W. Bush. Federal Reserve chairman Jerome Powell's testimony to Congress, scheduled for Wednesday, has been cancelled.
• Friday brings the US monthly employment report for November.
• China November trade data are due on Saturday.

Bloomberg, Reuters