Stocks Set For Worst Drop in 4 Months On China Woe: Markets Wrap

Stocks set for worst drop in 4 months on China woe. U.S. stocks and commodities sank after China retaliated with higher tariffs on a range of American goods. Treasuries jumped with the yen on demand for haven assets.

The S&P 500 headed for the biggest decline since Jan. 3 and and the Dow Jones Industrial Average slumped more than 500 points after China targeted some of the nation’s biggest exporters. Boeing dropped almost 3%, Caterpillar Inc. fell 4% and Apple Inc. lost 5%. Soybeans plunged about 2% and cotton prices tumbled over 4%. The dollar erased gains and 10-year Treasury yields fell to the lowest level since late March. Oil climbed as Saudi Arabia said two of its tankers were “sabotaged.”

Risk assets had been under pressure all morning after President Donald Trump warned China not to retaliate after the latest round of American measures. The selling picked up when China said it will raise tariffs starting June 1. An unverified Twitter post purportedly by China’s Global Times suggested the possibility of selling some of Treasuries holdings. The escalation comes after talks ended last week in a stalemate, with no timeline for future discussions.

“Investors are increasingly worried an anticipated second-half profit rebound may now evaporate as President Trump’s threat to tariff the remaining $325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven U.S. economy,” said Alec Young, managing director of global markets research for FTSE Russell.

The Stoxx Europe 600 index was dragged into the red as almost every industry sector retreated, extending declines as the European Union said it was finalizing a list of U.S. goods to target in the event Trump imposes levies on car imports.

Investors are struggling to find positive catalysts for risk assets after the U.S. stepped up punitive tariffs on $200 billion in annual imports from China, and Trump started his Monday morning threatening that the trade standoff will “get worse” if there’s retaliation. While both economic superpowers have also worked hard since talks ended Friday to project calm and emphasize that they plan to continue negotiations, markets seem to sense fundamental divisions between the two sides.On Monday, American officials are expected to announce details of their plans to boost tariffs on all remaining imports from China — some $300 billion in trade. Chinese state media blamed the U.S. for a lack of progress in trade talks while emphasizing the Asian nation’s economic resilience.

Elsewhere, Bitcoin climbed above $7,000 as the recent gains in cryptocurrencies extended over the weekend. Most base metals retreated as traders reassessed the demand outlook given the threats to global economic growth.Here are some notable events coming up this week:

• Earnings this week include Vodafone, Alibaba, Tencent, Cisco, Nvidia.
• A slew of Federal Reserve policy makers speak: Boston Fed President Eric Rosengren and Fed Vice Chairman Richard Clarida speak at a “Fed Listens” event hosted by the Boston Fed. New York Fed President John Williams speaks at an event in Zurich. Kansas City Fed President Esther George and Richmond Fed President Thomas Barkin also make appearances.
• Japan balance of payments is due Tuesday.
• China industrial production and retail sales are slated for Wednesday, same day as U.S. retail sales and industrial production.
• Bank of Indonesia has an interest rate decision on Thursday.
• Australian unemployment is out on Thursday.

And here are the main market moves:

Stocks

• The S&P 500 Index decreased 2.1% as of 10:41 a.m. New York time.
• The Dow Jones Industrial Average slid 2%, while the Nasdaq Composite Index tumbled 2.7%.
• The Stoxx Europe 600 Index fell 1.3% to the lowest in two months.
• The U.K.’s FTSE 100 Index dipped 0.6% to the lowest in nearly two months.
• The MSCI Asia Pacific Index declined 0.8%.
• The MSCI Emerging Market Index decreased 1.7%.

Currencies

• The Bloomberg Dollar Spot Index was little changed after paring earlier gains.
• The euro increased 0.2% to $1.1255.
• The British pound advanced 0.1% to $1.3016.
• The Japanese yen jumped 0.8%, the most since March 22, to 109.08 per dollar.

Bonds

• The yield on 10-year Treasuries fell six basis points to 2.40%, the lowest since March 29.
• Germany’s 10-year yield dipped two basis points to -0.07%.
• Britain’s 10-year yield declined three basis points to 1.10%.

Commodities

• West Texas Intermediate crude increased 1.6% to $62.67 a barrel.
• Gold increased 0.8% to $1,298.10 an ounce.

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