Economy

Wall St shudders as U.S.-China trade war intensifies

Wall St shudders as U.S.-China trade war intensifies

"In addition, USA manufacturers who compete with China can raise prices, too". -China trade deal could happen soon and are bracing their portfolios for a more prolonged battle that could hamper global growth.

World stocks hovered near two-month lows on Tuesday, although slightly more optimistic comments from US and Chinese officials on trade brought some comfort a day after equities suffered their worst sell-off so far this year.

China said it will impose higher tariffs on $60 billion worth of American-made products on June 1 as payback for President Trump's decision last week to jack up US tariffs on Chinese goods to punish Beijing after trade talks fell apart heading into the weekend.

"An eventual agreement still seems the most likely outcome, although political miscalculation is a rising risk", said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute. These adjustments will continue after Monday, she said.

USA stocks plunged on Monday with Nasdaq experiencing its worst day of 2019, as investors monitored the latest development of global trade.

The first-quarter earnings season is winding down, with 453 of the S&P 500 companies having reported.

"The market's realizing that this was an absolute breakdown of (trade) talks and everything is gone backwards", said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. "The market is starting to realize the situation is as bad as it could be".

"As China's economic and geopolitical rise butts up against existing USA interests, eleventh hour negotiations and brinkmanship will be a recurring theme which the markets will learn to price in", they said.

US stocks have reclaimed some of the ground lost in the prior day's steep sell-off, with tariff-sensitive technology stocks leading the S&P 500 and the Nasdaq higher as investors were heartened by a tonal shift in US-China trade rhetoric.

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Market volatility has jumped.

Asian shares opened weaker but closed off the lows, thanks to the more upbeat official tone. The index jumped again on Monday.

Technology stocks were bearing the heaviest losses.

The broader S&P 500 index fell 2.8%. The S&P 500 advanced 0.8% to 2,834.41 as tech shares outperformed. The yield on the 10-year Treasury fell to 2.39% from 2.45% late Friday. A sustained inversion of this part of the yield curve has preceded every USA recession in the past 50 years.

Still, since Beijing's tariff increases only take effect on June 1 and those raised by Washington apply only to goods shipped after May 10, which will take a couple weeks or more to reach the US, there is still time to find a compromise in the festering dispute over Chinese efforts to gain a lead in advanced technologies through means that the Trump administration says are unfair and violate world trade rules.

But "an accompanying "reinversion" of the Treasury yield curve suggests that the best days for USA equities may be over even if the two economies eventually resolve their dispute".

"Supply-side disruptions along with simmering US-Iran tensions have supported oil prices however as market fundamentals remain tight for the current term", said Benjamin Lu, commodities analyst at Phillip Futures in Singapore.

Investors' trade war fears have clearly intensified - Bank of America Merrill Lynch's monthly survey showed equity allocations falling sharply in May and a record number of funds saying they were hedged against a sharp stock market fall.

Talking to CNBC, Greg Luken, CEO of Luken Investment Analytics said: "I think this is going to last for a while". "If there was a situation where there wasn't some type of trade deal, you would see markets much worse, and it would be across the board".