Global stocks and US bond yields fall as US-China trade war rapidly escalates

New York — Global stock markets tumbled and US bond yields fell on Tuesday while the dollar rose as investors flocked to safety in the face of a rapidly escalating US-China trade conflict.

Agricultural commodities were also hammered with soybeans feeling the most pain after US President Donald Trump threatened to impose a 10% tariff on another $200bn of Chinese goods. China’s commerce ministry described the threat as “blackmailing” and said Beijing would fight back with “qualitative” and “quantitative” measures.

Government bonds and the yen rallied as investors sought protection. Oil futures also pulled back with US crude seeing the deepest declines.

Wall Street’s three major indices were lower, though the S&P 500’s decline was much more measured than that of overseas markets. In China, the Shanghai Composite Index slumped nearly 5% at one point.

“The administration has said the sabre rattling on trade is a negotiating tactic and that Trump isn’t going to create a trade war. That’s the bullish case, but as the new developments keep unfolding it looks more and more like a trade war,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

The Dow Jones Industrial Average fell 341.83 points, or 1.37%, to 24,645.64; the S&P 500 lost 20.98 points, or 0.76%, to 2,752.77; and the Nasdaq Composite dropped 76.32 points, or 0.99%, to 7,670.71.

The pan-European FTSEurofirst 300 index lost 0.6% and MSCI’s gauge of stocks across the globe shed 1%. Front-month soybean contracts fell 5.5%, or 50c a bushel, to $8.58 a bushel, and at one point fell to $8.41 a bushel, the lowest for that crop since December 2008.

US crude oil fell 1.2%, or 80c a barrel, to $65.04; China has threatened to impose tariffs on US crude exports.

Great fall of China

Emerging-market stocks lost 2% while MSCI’s broadest index of Asia-Pacific shares outside Japan closed 2.3% lower. The Shanghai Composite Index ended 3.8% lower after slumping nearly 5% at one point to its lowest level since mid-2016.

Hong Kong’s Hang Seng closed 2.8% lower. Japan’s Nikkei lost 1.8%. China’s economy is already clouded by a sharp slowdown in fixed-asset investment growth because of the government’s deleveraging drive, a problematic property sector, mounting debt and rising credit defaults.

“The rising risk of a disruptive trade conflict makes a bad situation tentatively worse,” economists at Nomura wrote.

The dollar, yen and Swiss franc rose on Tuesday as traders piled into perceived less risky currencies due to the US-China trade dispute.

The dollar index rose 0.31%, with the euro down 0.47% to $1.1567. The Swiss franc increased 0.6% against the euro at 1.1495 and was marginally higher against the greenback at 0.9948 francs.

The yen strengthened 0.7% against the greenback at ¥109.80 to the dollar as the yen is often sought as a safe haven in times of market turmoil and political tensions.

The skid by China’s yuan to a five-month low was its biggest fall in a year and a half.

US 10-year and 30-year yields fell to three-week lows, while those on two-year notes slid to two-week troughs. US benchmark 10-year yields fell to a three-week low of 2.853%, from Monday’s 2.926%. They were last at 2.878%. US 30-year yields dropped to 2.991%, a three-week low as well, compared with 3.055% on Monday, and were last at 3.014%.

With Russia and Saudi Arabia pushing for higher output, crude oil markets were volatile ahead of Friday’s oil cartel Opec meeting. US crude fell 1% to $64.67 a barrel and Brent was last at $74.70, down 0.8% on the day.

Reuters