Wall Street tanks on Trump trade salvo

US stocks slumped after Donald Trump vowed a tough response to new Chinese tariffs, setting the stage for more ASX losses.

The Dow dropped 2.4 per cent on the latest trade blows. Picture: AFP

US stocks slumped Friday after China said it would impose retaliatory tariffs on additional US products and President Trump vowed to respond.

The Dow Jones Industrial Average dropped more than 600 points, or 2.4 per cent, putting a halt to a relatively quiet week for markets. Yields on US government bonds also tumbled, as did commodities markets, such as oil and copper, that are sensitive to the two countries’ trade battle.

The losses accelerated after President Trump fired off a series of Tweets in response to China’s plan to impose tariffs on $US75 billion more in US goods.

“We don’t need China and, frankly, would be far better off without them, “ he said on Twitter, while ordering US companies to start looking for alternatives to producing in China.

Then, after markets had closed, Mr Trump escalated the issue even further, announcing he was raising 25 per cent tariffs to 30 per cent tariffs from October 1.

...Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%. Thank you for your attention to this matter!

— Donald J. Trump (@realDonaldTrump) August 23, 2019

The developments Friday marked an escalation of trade tensions between two of the biggest global economies, stoking waves of selling in the stock market. The S&P 500 dropped 2.6 per cent, giving up its gains for the week, while the Nasdaq Composite declined 3 per cent.

In signs Australian stocks could take a dive on Monday, the SPI futures index was this morning down 88 points.

“The timing of it is remarkable,” said John Brady, managing director at futures brokerage R.J. O’Brien & Associates, of the trade news. “It puts tariffs front and centre on a very important day for markets.”

The developments overshadowed a highly anticipated speech from Federal Reserve Chairman Jerome Powell in Jackson Hole, Wyoming, about the future of interest-rate policy.

Ahead of the speech, many investors suggested his comments had the potential to spark big moves across bond, currency and stock markets. Instead, the reaction was muted. Stocks briefly rose after the speech and took a dive following Mr Trump’s comments on Twitter.

“It seems as though it’s a freaky Friday,” said Michael Arone, chief investment strategist at State Street Global Advisors. “It looks as though the markets are bracing for the worst.”

In one sign of the anxiety in markets, a measure of stock volatility via the Cboe Volatility Index jumped 26 per cent to 21.04 in recent trading after declining this week.

Mr Powell said uncertainty over trade policy was “playing a role in the global slowdown and in weak manufacturing and capital spending in the US” adding the Fed would act accordingly to “sustain the expansion.”

In Friday’s tweets, Mr Powell again drew the ire of President Trump who “the Fed did NOTHING.”

....My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?

— Donald J. Trump (@realDonaldTrump) August 23, 2019

Shares of technology companies were some of the biggest hit in the S&P 500, falling 3.1 per cent and underperforming the broader gauge. Retail stocks also took a hit, with L Brands and Hasbro each diving more than 8 per cent.

Earlier this week, strong retail earnings helped lift US stocks as investors cheered the strength of the domestic consumer. But the prospect of fresh tariffs and an ongoing trade fight chipped away at this optimism to end the week.

Investors said that they weren’t expecting a quick resolution and anticipated more volatility ahead.

“This is going to be ping-pong for awhile,” said Sean O’Hara, president of the ETF division at Pacer Financial Inc. “That’s what we’re going to continue to see until we get a resolution, if we ever do. It’s probably going to drive the short-term ups and downs of the market.”

Auto makers such as General Motors and Ford Motor fell about 3.1 per cent and 2.5 per cent, respectively. Caterpillar, which has also been sensitive to trade news, fell about 3.1 per cent. Apple dropped 4.5 per cent.

The yield on the 10-year Treasury note fell to 1.511 per cent in recent trading, according to Tradeweb, compared with 1.613 per cent Thursday. Yields fall as bond prices rise.

Meanwhile, the WSJ Dollar Index fell 0.4 per cent to 90.94. Lower Treasury yields can make the US dollar less attractive to income seeking investors around the world.

US crude oil dropped about 3.4 per cent to $US53.48 a barrel.

Friday’s moves in stocks came a day after a series of weak manufacturing data around the world raised concerns about a possible recession, weighing on U.S. indexes.

Wall Street Journal