Escalating Trade Threats Slam Global Shares
June 19 2018 - 11:28AM
Dow Jones News
By David Hodari
-- Fresh tariff threats batter global stocks
-- ZTE pounded after Senate votes to reimpose ban
-- Industrials, materials sectors among worst in S&P
Global stocks dropped Tuesday as trade tensions between the U.S.
and China intensified, sparking selling from Shanghai to New
York.
The Dow Jones Industrial Average tumbled 399 points, or 1.6%, to
24588. The S&P 500 fell 1%, and the Nasdaq Composite fell
1.4%.
Shares of industrial and materials companies, which analysts
fear could take a heavy hit under a trade war, were the S&P
500's worst-performing sectors, falling 2.4% and 2.6% respectively.
Utilities, real estate and consumer staples -- groups that
investors often flock to in times of market volatility -- all
climbed.
The swings in the U.S. stock market came after Asian investors
dumped Chinese stocks, sending the Shanghai Composite Index down to
its lowest level in almost two years, and the Shenzhen A Share
index shedding 5.8%. Investors also unloaded stocks elsewhere, with
the Stoxx Europe 600 recently down 1%.
President Donald Trump raised the stakes in Washington's trade
conflict with China Monday, asking his administration to draw up a
fresh list of Chinese goods worth $200 billion on which to impose
tariffs.
The move followed levies on $50 billion in Chinese imports to
the U.S. enforced late last week aimed at punishing China for
unfair trading practices. Beijing immediately threatened
retaliatory measures on high-value American exports such as crude
oil, farm products and cars.
Should China follow through on those measures, Mr. Trump said he
had instructed U.S. Trade Representative Robert Lighthizer to
impose a 10% tariff on that fresh tranche of goods.
The development marked the latest escalation in a series of
events that investors fear could precipitate a trade war between
the world's two largest economies. Investor worries about the
willingness of the Trump administration to maintain international
trading relationships with neighbors and allies have injected
uncertainty into global markets in recent months.
Kate Warne, investment strategist for Edward Jones, cautioned
investors against changing their holdings substantially, given that
the tariff threats might not actually take place.
"It's hard to tell whether these announcements are all
negotiating positions and we'll see some set of discussions to
basically lower the temperature," Ms. Warne said.
Trade concerns were among the risks highlighted by European
Central Bank President Mario Draghi on Tuesday, when he said the
bank could extend its giant bond-buying program again and delay any
interest-rate increases amid mounting economic risks. The comments,
days after the ECB laid out plans to phase out its bond purchases,
underline the bank's caution in winding down a major stimulus
program just as the region's economy appears to be slowing.
While the impact of the trade dispute for U.S. consumers has so
far been muted, firms across the world would feel the effects if
Washington and Beijing implement their proposed levies, according
to Paul Donovan, chief economist at UBS Global Wealth
Management.
"Non-Chinese companies, including U.S. companies, are just as
likely to be affected by taxes on Chinese goods, given the
complexity of modern supply chains," Mr. Donovan said in a
note.
Government bonds strengthened, with the yield on the benchmark
10-year U.S. Treasury note falling to 2.875%, according to
Tradeweb, compared with 2.926% late Monday. Yields fall as bond
prices rise.
With strong growth and an interest-rate increase last week from
the Federal Reserve, the WSJ Dollar Index, which measures the U.S.
currency against a basket of 16 others, was last up 0.3%, extending
its five-day climb to 1.2%.
If U.S. tariffs do begin to squeeze the Chinese economy, "the
fear would be that China could be tempted to devalue its currency
as a support mechanism for its economy," said Lee Hardman, currency
analyst at MUFG.
Hong Kong-listed ZTE Group plummeted 25% after the U.S. Senate
voted to reinstate a ban on selling U.S. parts to the Chinese
telecom company. The move marked the rejection of a deal between
Mr. Trump and Beijing to save the firm.
Saumya Vaishampayan and William Mauldin contributed to this
article.
Write to David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
June 19, 2018 11:13 ET (15:13 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.