Futures Sink on Intensified US-China Trade Tensions

futures sink

Futures on the three major US indexes declined more than 1 percent on Tuesday with US President Donald Trump’s most recent threats to impose more tariff duties on Chinese imports firing up concerns over the higher possibility of a full-blown trade war.

The president has threatened to impose 10 percent tariff on $200 billion worth of Chinese goods. Beijing has responded and warned that it would answer with “qualitative” and “quantitative” measures.

Dow e-minis were lower 344 points, or 1.38 percent, while S&P 500 e-minis declined 30.75 points, or 1.11 percent. The tech-heavy Nasdaq 100 e-minis decreased 94.75 points, or 1.3 percent.

The Dow Jones Industrial Average was indicated to slump more than 350 points at the open, which would erase all the index’s gains so far this year. Of the 30 components, 29 were in the red during the premarket trading.

Trump’s move, which was fast, sharp, and unexpected, sent global financial markets skidding. It also marks an escalation of the two countries’ move to impose tariffs on $50 billion of each other’s goods.

“While it is hard to see these trade tensions escalating into a trade war, the President has shown that he is not afraid to leave the negotiating table,” stated Michael Olivia, who is a financial planner with Westpac Wealth Partners.

“From a negotiation perspective, it’s a powerful tool. From a market perspective, it leads to increased uncertainty. In the near-term, we would expect to see volatility in markets as they attempt to price in the net impact of tariffs,” he added.

The CBOE Volatility Index, which is the most widely tracked measure of expected near-term volatility in the S&P 500 index, reached more than week record high at 14.67 before it retreated back to 14.38.

Boeing, meanwhile, has served as a proxy for trade war tensions with China since it’s the single biggest US exporter to the country, dropped 2.1 percent during the premarket trade. Construction equipment maker Caterpillar lost 2.3 percent.

Chipmakers depend on China for a huge part of their revenue, and they have also slipped along with Intel, Broadcom, Qualcomm, and AMD. They were all down over 1.5 percent.

A recently passed defense bill that paved the way for a potential battle with the White House concerning ZTE Corp’s ability to continue business with its US suppliers also added more worries to the escalating trade disputes.

Benchmark US Treasury Note yields dropped to more than 2-weel low as the demand for the safe-haven US debt rose.

For specific stocks, Apple shares dropped 1.2 percent during broad selloff fueled by fears of intensifying trade tensions, even though a report said that Trump has told Apple chief executive Tim Cook he would place tariffs on iPhones manufactured in China.

Intel stocks decreased 1.45 percent. According to analysts, the world’s largest chipmaker could sidestep Trump’s tariffs by shifting productions over their facilities.

Amazon.com stock was also down 1.0 percent after reports said that its founder and chief executive officer Jeff Bezos is the world’s richest person.

 

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