Concerns over relations between the United States and China slammed global equity markets, oil futures and U.S. Treasury yields on Tuesday as investors fretted about setbacks in trade talks between the world’s two biggest economies.
U.S. equities deepened their losses as the session wore on as investors bet that U.S. President Donald Trump’s weekend threat to hike tariffs on hundreds of billions of dollars of Chinese goods could actually materialize at the end of the week.
U.S. Trade Representative Robert Lighthizer on Monday vowed to continue talks but said that as of now “come Friday there will be tariffs in place.”
While investors initially gave Trump the benefit of the doubt on views the tariff threats were a strong negotiating tactic, Michael Antonelli, market strategist at Robert W. Baird in Milwaukee, said they were less convinced after Lighthizer’s comment.
“The reason the market is so scared today is because the notion it was a negotiating tactic is beginning to fade away,” he said. “On days like today buyers disappear and any little mini rally gets decimated. Nobody wants to get in front of an out of control car today.”
The Dow Jones Industrial Average fell 472.17 points, or 1.79 per cent, to 25,966.31, the S&P 500 lost 48.38 points, or 1.65 per cent, to 2,884.09 and the Nasdaq Composite dropped 159.53 points, or 1.96 per cent, to 7,963.76.
Canada’s main stock index also fell on Tuesday.
The Toronto Stock Exchange’s S&P/TSX composite index was down 144.41 points, or 0.82 per cent, at 16,357.75.
Eight of the 11 major sectors were lower, led by a 1.3-per-cent drop in the energy sector. Oil prices took another beating amid concerns over global growth.
The materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.8 per cent as copper prices headed toward 2-1/2 month lows.
MSCI’s gauge of stocks across the globe shed 1.23 per cent, while the pan-European STOXX 600 index lost 1.37 per cent.
“The issue is to sit down and make more progress on this. Right now it feels like we’re at a place where things are getting worse, not better, in terms of getting a deal done,” said Art Hogan, chief market strategist at National Securities in New York.
U.S. Treasury yields were lower as investors turned to fixed income for safety. By late afternoon the spread between U.S. short-dated and long-dated Treasury yields narrowed further as longer-dated yields fell to five-week lows.
Benchmark 10-year notes last rose 15/32 in price to yield 2.4477 per cent, from 2.5 per cent late on Monday.
The U.S. dollar rose and the Chinese offshore yuan remained hobbled near 2-1/2 month lows as the U.S.-China uncertainty rattled traders, though both moves were modest.
The dollar index, tracking the greenback against six major peers, rose 0.15 per cent, with the euro down 0.1 per cent to $1.1186.
The offshore yuan was last down 0.45 per cent at 6.802 yuan per dollar.
The Japanese yen strengthened 0.52 per cent versus the greenback at 110.21 per dollar.
Oil prices closed at their lowest in over a month on Tuesday as renewed doubts over a U.S.-China trade deal stoked concerns over global growth and on expectations that U.S. crude stockpiles could hit fresh 19-month highs.
Brent futures fell $1.36, or 1.9 per cent, to settle at $69.88 a barrel, while U.S. West Texas Intermediate slipped 85 cents, or 1.4 per cent, to end at $61.40.
Those were the lowest settles for Brent since April 4 and WTI since March 29.
“WTI has been beaten down during the past couple of weeks by some unexpectedly large crude supply increases,” Jim Ritterbusch, president of Ritterbusch and Associates in Chicago, said in a report.
U.S. crude stocks have climbed to their highest since September 2017 and were forecast to have added another 1.2 million barrels last week, according to analysts in a Reuters poll.
The poll was conducted ahead of weekly reports from the American Petroleum Institute (API), an industry group, at 4:30 p.m. EDT and from the Energy Information Administration (EIA), at 10:30 a.m. EDT on Wednesday.
Reuters