Escalating Trade Threats Slam Global Shares
June 19 2018 - 5:29PM
Dow Jones News
By David Hodari and Allison Prang
-- Fresh tariff threats batter global stocks
-- Industrials, materials sectors worst in S&P
-- Safety sectors close higher
Global stocks dropped Tuesday as trade tensions between the U.S.
and China intensified, sparking selling from Shanghai to New
York.
The declines came after President Donald Trump raised the stakes
in Washington's trade conflict with China, asking his
administration on Monday to draw up a fresh list of Chinese goods
worth $200 billion on which to impose tariffs.
That move marked the latest in a series of back-and-forth
measures between the countries that left investors around the globe
worried the conflict would escalate into an all-out trade war.
The Dow Jones Industrial Average tumbled 287.26 points, or 1.1%,
to 24700.21, notching its longest streak of consecutive declines
since March 2017. The S&P 500 fell 11.18 points, or 0.4%, to
2762.57 and the Nasdaq Composite lost 21.44 points, or 0.3%, to
7725.59.
Shares of industrial and materials companies in the S&P 500,
which analysts fear could take a heavy hit under a trade war, fell
2.1% and 1.8% respectively. Utilities, real estate and consumer
staples -- groups that investors often buy in times of market
volatility -- all climbed, along with shares of telecom and
health-care firms.
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.
The declines in the U.S. stocks came after Asian investors
dumped Chinese stocks, sending the Shanghai Composite Index down to
its lowest level in almost two years, while the Shenzhen A Share
index shed 5.8%. Investors also unloaded stocks elsewhere, with the
Stoxx Europe 600 closing down 0.7%.
Trade concerns were among the risks highlighted by European
Central Bank President Mario Draghi on Tuesday, when he said the
bank could extend its 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 2.893%, compared with 2.926%
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 0.2%, extending
its five-day climb to 1.1% .
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 and Allison
Prang at allison.prang@wsj.com
(END) Dow Jones Newswires
June 19, 2018 17:14 ET (21:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.