8/5/2019 12:37:00 PM Stocks sink world wide as trade war worsens
NEW YORK (AP) — Stocks tanked again today on worries that President Donald Trump’s worsening trade war will threaten a global recession and drag profits for companies even lower.
China let its currency, the yuan, drop to its lowest level against the dollar in more than a decade, a move that Trump railed against as “currency manipulation.” It followed his own tweets last week that threatened tariffs on about $300 billion of Chinese goods, which would extend tariffs across almost all Chinese imports.
The escalating trade war between the world’s largest economies is rattling investors already unnerved about a slowing global economy, falling U.S. corporate profits and possibly too-weak inflation.
“The Great China Trade Deal evaporated before our eyes last week and investors should stop hoping it back into existence,” Christopher Smart, head of the Barings Investments Institute, wrote in a report.
Losses were steep and worldwide as a sell-off that began Monday in Asia swept westward through Europe to the Americas. Investors in search of safety herded into U.S. government bonds, which sent yields plunging lower.
The yield on the 10-year Treasury note, which rises with expectations of stronger economic growth and inflation, fell to its lowest level since Trump’s 2016 election energized markets, down to 1.75% from 1.85% late Friday.
The S&P 500 lost 2.4%, as of 12:17 p.m. Eastern time, and was on track for its worst day in nearly three months. The Dow Jones Industrial Average fell 605 points, or 2.3%, to 25,880, and the Nasdaq composite dropped 3.1%.
The U.S. economy is still growing, the unemployment rate remains close to its healthiest level in nearly half a century and U.S. stock indexes set record highs just over a week ago. But the escalating trade tensions and disappointment that the Federal Reserve has not committed to a lengthy series of interest-rate cuts have sent the S&P 500 on a losing streak set to hit its sixth day, which would be its longest since October. The S&P 500 is 5.3% below its record.
A weaker yuan gives Chinese manufacturers a boost by making their products cheaper on worldwide markets for buyers using dollars or other currencies. That hurts U.S. manufacturers, which have already been hit by the slowing global economy. It also adds more downward pressure on inflation, which some economists worry may be edging toward too weak. In the worst case, falling prices encourage people and companies to hold off on buying things, which starts a vicious cycle of less and less economic activity.
The U.S. has long complained about the weakness of China’s currency, and Monday’s drop brought the yuan past a level that traders saw as an important psychological benchmark, at seven per $1. Analysts were mixed, though, on whether the move was a result of China weaponizing the yuan or merely a reflection of its own slowing economy and the painful effects of tariffs.
The latest round of tariffs threatened by Trump would much more directly hit U.S. consumers buying clothes and electronics made in China. Earlier tariffs more heavily affected businesses, which have already pulled back on their investment given all the uncertainties about trade and the global economy.
Technology stocks bore the brunt of Monday’s selling, and Apple slid 4.7%. It not only depends on Chinese factories to assemble its iPhones, but China is also the only country aside from the United States that accounts for more than 10% of its sales. Chip stocks were also among the hardest hit in the S&P 500, and Nvidia sank 6.5%.