Stock markets plunge on US-China trade war fears

The day’s numbers are displayed after the closing bell of the Dow Industrial Average at the New York Stock Exchange on June 19, 2018, in New York. Wall Street stocks were under pressure for a third session in a row joining a global selloff on heightened fears that US-China confrontations will mushroom into a trade war. The Dow Jones Industrial Average dropped 1.2 percent to 24,700.21. AFP

WASHINGTON, United States – Global stock markets tumbled Tuesday on rising fears of a trade war after US President Donald Trump threatened fresh tariffs on Chinese imports and Beijing warned of countermeasures.

Eyes were also on talks in Germany between the country’s Chancellor Angela Merkel and French President Emmanuel Macron on EU reform and immigration debates.

Merkel and Macron have both stressed that the bloc must learn to stand its ground on the world stage, as Trump openly challenges the EU with a trade war and over security and climate policy.

Merkel announced an agreement to set up a common budget for the eurozone, but concerns over her political future are likely to remain, in turn weighing down European stocks.

Bourses in Paris and Frankfurt fell more than one percent.

US stocks also retreated, with the Dow losing 1.2 percent and the tech-rich Nasdaq 0.3 percent.

“Political concerns continue to fester in Germany and Brexit uncertainty is lingering,” Charles Schwab analysts wrote.

More broadly, it was the volatility sparked by Trump’s latest threats that was most felt on trading floors worldwide.

“The clear escalation that’s occurred in recent days has shaken investors and appears to have brought an end to the good run that US stock markets had been on since the start of May,” wrote Craig Erlam, market analyst at Oanda.

“While Chinese stocks are faring much worse at the moment, US companies are obviously not immune to a trade war and could come under more pressure unless both sides find a solution.”

Trump has asked the US Trade Representative to identify $200 billion worth of imports to be targeted, adding he would hit a further $200 billion if Beijing retaliates.

Trade war coming?

The US and China, the world’s top two economies, already announced Friday tit-for-tat measures on goods valued at about $50 billion as the US president pushes ahead with his protectionist America First agenda.

Despite the escalating rhetoric, many on Wall Street are skeptical a worst-case scenario of an all-out trade war will come to pass.

“Our advice to clients has been to step back from the day-to-day noise,” said Alan Skrainka, chief investment officer at Cornerstone Wealth Management.

“We think that at the end of the day, cool heads will prevail and both sides will reach an agreement.”

Meanwhile, oil prices stayed on their downward slope ahead of a key OPEC meeting on crude output levels on Friday, in an apparent sign that investors were expecting the cartel and Russia to open the taps.

And while recent statements by officials from oil giants Saudi Arabia and Russia appear to indicate that a hike may well be on the horizon, OPEC summits can be full of surprises.

The upcoming June 22-23 meetings of OPEC and non-OPEC energy ministers are set to be the most contentious in a while, with several countries bristling at the thought of reversing a deal that has been in place for 18 months and helped lift oil prices to multi-year highs. /cbb