President Trump's efforts to calm investors while he launches a full-scale trade war with China showed signs of cracking on Monday, as one of his top advisers admitted the approach could damage the USA economy, a Goldman Sachs report said it could lead to higher interest rates, and China vowed to hit $60 billion of US goods with large tariffs on June 1.
The broad-based S&P also fell 2.4 per cent to 2,811.87, while the tech-rich Nasdaq Composite Index tumbled 3.4 per cent to 7,647.02.
Stocks plunged in trading Monday after China announced retaliatory tariffs on US goods and as prospects for a deal to avert a trade war seemed more remote. The goods targeted include a broad range of agricultural products.
While Trump has asked China to "act now", investors didn't have to wait for such a call from the US President before taking risk off the table.
A lack of progress in the US-China trade impasse should create a supportive environment for safe-haven assets, while a major deterioration in tensions could see a major upwards move for the likes of Bullion and JPY. Asian markets were mixed. Meanwhile, the Nasdaq Composite Index registered the heaviest loss so far this year. Investor confidence that the two sides were close to a resolution had helped push the market to its best yearly start in decades.
"Volatility is going to persist".
Investors will be watching for German growth numbers on Wednesday after the economy reached the brink of recession a year ago as a combination of trade tensions and a slowdown in China weighed on industrial production. But "this is more of a re-evaluation of stocks than it is a pure panic".
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The 10-year U.S. Treasury yield ticked down to 2.428% from 2.455% on Friday.
"A lot of the run up this year was not only because the Fed changed its course, but also due to the abating of trade war concerns, and now that they've invigorated, it causes the gain to come off", said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co. Trump also said that China had a "great deal" nearly completed but they "backed out". The red portion on USA tariff levels represents new tariffs that President Trump already put into place in 2018. Trump followed through on his threat, raising levies from 10% to 25% on $200 billion worth of Chinese goods.
The S&P 500 index rose 22.54 points, or 0.8%, to 2,834.41. Bank of America dropped 4.5% and JPMorgan Chase fell 2.7%.
Also Monday, Trump said he still was considering whether to go ahead with penalties on the additional $300 billion of Chinese goods.
"Indeed, it probably won't invert much more at all, if we are right that the Fed has already delivered its final rate hike in this cycle".
The latest round of US-Chinese trade negotiations ended in Washington on Friday without a deal. According to the report, an average American family of four would pay $2,300 more in goods and services each year if Trump imposes a 25% tariff on all goods from China, as he has repeatedly threatened.
"If China did start to (sell Treasuries) it will galvanise both side of politics in the US against China and the Fed would be sent into the market to buy bonds", Greg McKenna, strategist at McKenna Macro said in a note to clients.
Despite the tension between the world's two largest economies, White House economic advisor Larry Kudlow said Sunday that Trump and Chinese President Xi Jinping are likely to meet at the June G-20 summit in Japan.