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- US equity markets fell under pressure early Monday after President Donald Trump threatened new tariffs on Chinese goods.
- The S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite all fell by nearly 2% in early trading, throwing a wrench in the US’s impressive 2019 stock-market recovery.
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President Donald Trump’s weekend tweets threatening new tariffs on Chinese goods sent global markets into what one firm called a “risk-off frenzy” on Monday morning.
The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite recouped a majority of their losses by mid-morning, all trading lower by 1%. The Dow tumbled by as much as 471 points as traders worried the US-China trade war could drag on without a resolution.
On Sunday, Trump tweeted that, starting Friday, he would increase tariffs on $200 billion worth of Chinese goods to 25% from 10% and slap fresh 25% tariffs on an additional $325 billion worth of Chinese goods.
“The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade,” the president added Monday morning. “With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!”
UBS economists said Trump’s tweets signaled the opposite of his statements just last Friday, when he said talks between Washington and Beijing to end their trade war were going “very well.”
The violent reaction in US equity markets has interrupted their impressive comeback from the historic sell-off that took place during the fourth quarter of last year.
This year’s rally has been fueled in part by the Federal Reserve‘s dovish posture, signs the domestic economy is on solid footing, and optimism that the US and China could reach a trade deal. The S&P 500 was up 17.5% this year through Friday’s market close.
Some of the more trade-sensitive corners of the market fell under intense pressure Monday morning, notably emerging-market equities, semiconductors, and US companies with particularly large exposure to China.
The China-heavy iShares MSCI Emerging Markets ETF fell 2.5% after the Shanghai Composite plunged nearly 6%.
“Our base case is that the US and China tariffs have stabilized, the sides will reach a deal that removes tariffs in stages, but long term non-tariff commerce barriers will continue to rise,” Morgan Stanley equity strategists wrote in a note to clients Monday morning. “But comments from the US threatening more tariffs introduce fresh uncertainty about the near term trajectory: a real possibility that another round of tariff escalation is part of the endgame.”
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