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US stocks tumble as US-China trade war rattles investors

Sunday, August 25, 2019

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The Dow Jones Industrial Average plunged more than 600 points last Friday (August 23) after the latest escalation in the trade war between the US and China rattled investors. The broad sell-off sent the S&P 500 to its fourth-straight weekly loss.

Stocks tumbled after President Donald Trump responded angrily on Twitter following China's announcement of new tariffs on US$75 billion in US goods. In one of his tweets he “hereby ordered” US companies with operations in China to consider moving them to other countries — including the US

Trump also said he'd respond directly to the tariffs — and after the market closed he delivered, announcing that the US would increase existing tariffs on US$250 billion in Chinese goods to 30 per cent from 25 per cent, and that new tariffs on another US$300 billion of imports would be 15 per cent instead of 10 per cent . Those announcements are likely to influence stock markets in Asia when trading opens there yesterday.

Friday's developments mark the latest escalation of an ongoing trade dispute between Washington and Beijing that has given investors whiplash as they try to assess its potential impact on the global economy. The tweets from Trump around 11 am ignited a wave of selling as investors fled stocks in favour of US Government bonds, pushing yields higher. The price of gold also rose.

“The market is spooked by the escalation in the trade war,” said Janet Johnston, portfolio manager at TrimTabs Asset Management. “Investors are looking for an endgame and we haven't seen it yet.”

The S&P 500 fell 75.84 points, or 2.6 per cent , to 2,847.11. The index is now down 4.5 per cent for the month. It's still up 13.6% for the year.

The Dow lost 623.34 points, or 2.4 per cent, to 25,628.90. The average briefly dropped 745 points. The Dow has had five declines of 2 per cent or more this year, with three of them coming this month.

The Nasdaq gave up 239.62 points, or 3 per cent, to 7,751.77. The Russell 2000 index of smaller company stocks skidded 46.52 points, or 3.1 per cent, to 1,459.49.

Trump also said Friday morning that he was “ordering” UPS, Federal Express and Amazon to block any deliveries from China of the powerful opioid drug fentanyl. The stocks of all three companies fell as traders tried to assess the possible implications.

Matt Arnold, an analyst who covers FedEx and UPS for Edward Jones, said it could be difficult for the companies to comply should the administration draft detailed guidelines for rooting out fentanyl.

“It's difficult to picture a scenario where UPS and FedEx are all that well-equipped to detect something like this,” he said.

The trade scuffle nearly overshadowed a speech by Jerome Powell in which the chairman of the Federal Reserve indicated the central bank was prepared to cut interest rates but gave no clear signal on when and by how much.

Speaking at a Fed policy conference in Jackson Hole, Wyoming, Powell noted that there's growing evidence of a global economic slowdown and suggested that uncertainty over Trump's trade wars have complicated the central bank's ability to set interest rate policy. Powell said the Fed “will act as appropriate to sustain the expansion”.


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