Monday August 5th

5-08-2019

Dow futures drop 380 points after China retaliates, escalating trade war

U.S. stock index futures fell sharply on Monday as a trade war between the world’s largest economies intensified with China retaliating against the U.S.′ latest move. Dow Jones Industrial Average futures dropped 385 points, indicating a fall of 380 points at the open. S&P 500 and Nasdaq 100 futures also indicated sharp losses. Trade bellwethers Caterpillar and Boeing dropped 2.2% and 1.9%, respectively, in the premarket. Semiconductor stocks liked Micron Technology, Skyworks Solutions and Advanced Micro Devices also fell before the bell. China, which has historically controlled its currency, the yuan, allowed it to fall to its lowest level against the dollar in more than a decade. The onshore yuan broke above 7 per U.S. dollar and traded at 7.04. “It appears to have decided that, given the increasingly dim prospects of a trade deal with the US, the boost to China’s export sector from currency depreciation is worth attracting the ire of the Trump,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note. “The fact that they have now stopped defending 7.00 against the dollar suggests that they have all but abandoned hopes for a trade deal with the US.” Bloomberg News also reported China has asked state-owned companies to suspend U.S. agricultural imports. These moves come after President Donald Trump announced last week the U.S. would impose a 10% tariff on $300 billion worth of Chinese imports. The tariff will take effect on Sept. 1. Trump’s announcement came after Chinese and U.S. officials discussed trade earlier last week as the two countries tried to restart talks. The news pushed the S&P 500 to its worst weekly performance of the year. The S&P 500 dropped 31% last week. The Dow had its second-biggest weekly drop of 2019 last week, sliding 2.6%. “Now we have a trade situation that is going off the rails as the side effects multiply due to the ramping up of the use of tariffs and we are only further apart from any resolution with the Chinese,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The policy of using tariffs as a tool to address our legitimate beefs with the Chinese has failed miserably.” Investors rushed to traditional safe havens like Treasurys and gold on Monday amid the uncertainty. The benchmark 10-year Treasury yield fell to 1.77% and reached its lowest level since November 2016. Gold futures for December delivery gained 1.1% to trade at $1,473 per ounce. European shares fell broadly. The Stoxx 600 index slid 2%. The German Dax slid 1.8% while the French CAC 40 pulled back 2.2%. Hong Kong shares declined Monday as businesses faced major disruptions amid a general strike aimed at bringing the city to a standstill. The benchmark Hang Seng index dropped 2.85% to close at 26,151.32. Other Asian markets also traded lower amid wider concerns over the trade dispute between Beijing and Washington. In Japan, the Nikkei 225 fell 1.74% to close at 20,720.29, adding to its losses from Friday where it had declined more than 2%. Shares of index heavyweight SoftBank Group dropped 3.48%. The Topix index shed 1.8% to finish its trading day at 1,505.88. South Korea’s Kospi fell 2.56% to close at 1,946.98. In mainland China, the Shanghai composite slipped 1.62% to close at about 2,821.50 and the Shenzhen component shed 1.66% to end its trading day at 8,984.73. The Shenzhen composite declined 1.467% to close at around 1,517.27. Oil prices fell on Monday on renewed global economic growth concerns after U.S. President Donald Trump threatened to escalate a trade war with China with more tariffs, which could limit fuel demand in the world’s two biggest crude consumers. Brent crude futures were down 71 cents, or 1.15%, to $61.18 per barrel by 0840 GMT. U.S. West Texas Intermediate (WTI) crude futures were also down 71 cents, or 1.28%, to $54.95 a barrel. Gold rose to a more than six-year high on Monday, gaining over 1%, as an escalating trade conflict between the United States and China sent investors scurrying for the safety of bullion. Spot gold was up 1.2% at $1,457 per ounce, after hitting its highest since May 2013 at $1,460.60. U.S. gold futures rose 0.8% to $1,469.10.