Global Stocks Fall as Trade Tensions Escalate
August 26 2019 - 5:17AM
Dow Jones News
By Shen Hong and Steven Russolillo
-- U.S., China make fresh threats before turning
conciliatory
-- European stocks post declines on light trading volumes
-- U.S. yield curve inverts again as two-year rate slips below
10-year
Global stocks and government bond yields fell on Monday as a
fresh escalation in the U.S. trade war with China, followed by
conciliatory moves over the weekend, cast fresh doubt on growth
prospects.
China's Shanghai Composite Index shed 1.1%. On Friday, the
world's second-largest economy said it would impose retaliatory
tariffs on additional U.S. products, prompting Mr. Trump to say he
would retaliate by lifting levies on Chinese goods. The news helped
send bond yields, U.S. stocks, and commodity prices lower at the
end of last week, while a widely watched gauge of volatility
rose.
Mr. Trump also said American companies were "hereby ordered" to
look for alternatives to China -- although aides said over the
weekend he had no plans to force businesses to relocate.
On Monday, investors' concerns about the impact on global trade
played out in the markets.
U.S. futures tied to the S&P, which were briefly negative on
Monday, turned positive after Mr. Trump said China had called U.S.
trade officials and asked to " get back to the table" for
talks.
Investors are losing faith in how both sides are approaching the
trade war and whether a resolution could be reached soon, according
to Peter Atwater, a research analyst and adjunct lecturer at
William & Mary in Williamsburg, Va.
"Confidence requires perceptions of certainty and control," he
said. "Stock investors now have neither."
In Europe, the Stoxx Europe 600 index declined 0.3% amid low
trading volumes around the region as the U.K.'s exchanges remained
closed for a bank holiday. The French CAC 40 was almost unchanged,
while the German DAX slipped 0.2%.
Meanwhile, Hong Kong's Hang Seng fell almost 2%, as
pro-democracy protests turned violent after nearly two weeks of
relative calm.
Separately, China's currency weakened to a multiyear low, weeks
after Beijing first allowed it to trade beyond the symbolic level
of 7 yuan per dollar. The currency is both a flashpoint in
relations with the U.S., and a means for China to make its exports
more competitive, helping offset the impact of U.S. import
tariffs.
Zhang Gang, a Shanghai-based senior analyst at Central China
Securities, said mainland investors have become less sensitive to
trade war news this year, and were also expecting more easing from
the People's Bank of China to offset an economic slowdown.
The onshore yuan dropped by 0.7% to 7.1466 against the
greenback, its weakest since February 2008. The more freely traded
offshore yuan dropped to as low as 7.1858 per dollar, marking a
weak point in the nine years since Beijing has allowed the currency
to trade in Hong Kong and elsewhere outside mainland China.
Prices for U.S. government debt rose as investors sought haven
assets. The yields on the 10-year U.S. Treasury and the two-year
bond inverted again, with the two-year yielding 1.453% and the
10-Year at 1.449%, according to Tradeweb. In the past, this has
been a signal of a recession. That put the 10-year note's yield
within 0.1 percentage point of the record closing low it registered
in 2016.
Sovereign bonds from Australia, South Korea and Japan rallied as
well, and gold prices rose 0.1%.
Later in the day, investors will be watching for July
durable-goods figures from the U.S. Commerce Department. Last
month, orders for manufactured products intended to last at least
three years rose 2% from the previous month. Economists surveyed by
The Wall Street Journal forecast durable-goods orders increased
1.1% in July from a month earlier.
--Caitlin Ostroff contributed to this article.
Write to Shen Hong at hong.shen@wsj.com and Steven Russolillo at
steven.russolillo@wsj.com
(END) Dow Jones Newswires
August 26, 2019 05:02 ET (09:02 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.