On Sunday and Monday US president Donald Trump published a number of tweets threatening to raise tariffs from 10% to 25% on $200bn of Chinese goods and impose a 25% tariff on another $325bn of currently untaxed goods. He also added that the levies imposed on Chinese goods over the past year were “partially responsible for our great economic results” and had “little impact on product cost”. “The Trade deal with China continues, but too slowly, as they attempt to renegotiate. No!” said Mr. Trump. On Monday 6th he added: “The US has been losing $600bn to $800bn a year on trade. With China we lose $500bn. Sorry, we are not going to be doing that anymore!”.
The tweets breached the calm and optimism of investors that had been seeing a positive outlook on the trade talks since December. The effects on global capital markets didn’t leave us waiting.
The US stock market slid 1.5% on opening, the worse one day performance since December. China mainland’s CSI 300 index slipped 6% on Monday, the biggest fall since February 2016, and the renminbi declined against the dollar at the lowest level since January. Sharp equity price declines followed in Europe and the US, along with bonds and oil prices. The S&P500 fell 0.7% at opening on Monday and another 1.6% on Tuesday, London’s FTSE100 had a 1.1% decline and the Stoxx600 fell 0.8%. Wall Street’s “fear gauge”, the VIX, climbed to its highest level since January. The FTSE MIB was overall flat, following mixed impacts of various other news, although the bank sector was hit, such as Unicredit’s 1.7% fall.
“This is the most significant escalation of the US-China trade war to date,” said Aditya Bhave, an economist at Bank of America. “The immediate market response suggests that the latest escalation of the trade war was a complete surprise to investors. This means that markets could be in for a bumpy ride before a trade deal is reached.”
In addition, investors interested in safer assets highly rated government debt. The 10-year US Treasury yield slipped 4 basis points to 2.49%, while the dollar rose against many major currencies on Monday.
Despite the latest fall, China’s stock market has gained 18% from the beginning of the year with more that 10% of the companies in the CSI 300 index up 50%. Probably a lot of optimism was priced early in the stock prices as the trade talks were giving positive outcomes.
China’s vice –premier and top trade negotiator, Liu He, is ready to fly to the US in the following days. The confirmation of this announcement helped partially bring back up Chinese stocks from Monday’s fall, with the CSI 300 rising 1.4%.
Despite the tension between the two countries, there is an area in which the they would have interest to have a common ground: energy.
Along with the stock market, also crude oil prices dropped on Monday. Brent crude oil was traded under $70 a barrel for the first time in a month, undoing the good it had obtained after the US announcement of removing sanction waivers for Iran customers.
China and the US total for a third of world oil consumption as they are first and second world’s largest crude oil importer respectively. For many oil traders, an escalation in the US-China trade war is an immediate risk and it would have a heavy impact on prices, damaging both countries and consequently the global economy. So, despite not being the heart of the dispute, oil should be accounted for when discussing trade agreements, as it is also believed it could be the only factor that could change the current situation and prevent global capital markets from entering a bearish phase.
Isabella Costa
The tweets breached the calm and optimism of investors that had been seeing a positive outlook on the trade talks since December. The effects on global capital markets didn’t leave us waiting.
The US stock market slid 1.5% on opening, the worse one day performance since December. China mainland’s CSI 300 index slipped 6% on Monday, the biggest fall since February 2016, and the renminbi declined against the dollar at the lowest level since January. Sharp equity price declines followed in Europe and the US, along with bonds and oil prices. The S&P500 fell 0.7% at opening on Monday and another 1.6% on Tuesday, London’s FTSE100 had a 1.1% decline and the Stoxx600 fell 0.8%. Wall Street’s “fear gauge”, the VIX, climbed to its highest level since January. The FTSE MIB was overall flat, following mixed impacts of various other news, although the bank sector was hit, such as Unicredit’s 1.7% fall.
“This is the most significant escalation of the US-China trade war to date,” said Aditya Bhave, an economist at Bank of America. “The immediate market response suggests that the latest escalation of the trade war was a complete surprise to investors. This means that markets could be in for a bumpy ride before a trade deal is reached.”
In addition, investors interested in safer assets highly rated government debt. The 10-year US Treasury yield slipped 4 basis points to 2.49%, while the dollar rose against many major currencies on Monday.
Despite the latest fall, China’s stock market has gained 18% from the beginning of the year with more that 10% of the companies in the CSI 300 index up 50%. Probably a lot of optimism was priced early in the stock prices as the trade talks were giving positive outcomes.
China’s vice –premier and top trade negotiator, Liu He, is ready to fly to the US in the following days. The confirmation of this announcement helped partially bring back up Chinese stocks from Monday’s fall, with the CSI 300 rising 1.4%.
Despite the tension between the two countries, there is an area in which the they would have interest to have a common ground: energy.
Along with the stock market, also crude oil prices dropped on Monday. Brent crude oil was traded under $70 a barrel for the first time in a month, undoing the good it had obtained after the US announcement of removing sanction waivers for Iran customers.
China and the US total for a third of world oil consumption as they are first and second world’s largest crude oil importer respectively. For many oil traders, an escalation in the US-China trade war is an immediate risk and it would have a heavy impact on prices, damaging both countries and consequently the global economy. So, despite not being the heart of the dispute, oil should be accounted for when discussing trade agreements, as it is also believed it could be the only factor that could change the current situation and prevent global capital markets from entering a bearish phase.
Isabella Costa