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Stocks Slide After China Lets Currency Dip, Raising Tensions With U.S. Stocks Head for Worst Day of 2019 as China Raises Trade Tensions With U.S.
(32 minutes later)
Global stocks dropped sharply on Monday after China let its tightly controlled currency sink to an 11-year low against the dollar, stoking investors’ concerns that Beijing may be using the renminbi as a weapon in the escalating trade war between the world’s two largest economies. Stocks dropped for sixth straight session on Monday, putting Wall Street on pace for its worst day of the year as China’s decision to let its currency sink against the dollar risked opening a new front in a trade war that is weighing on the world’s economy.
On Wall Street, shares tumbled more than 2 percent after the start of trading, after benchmark indexes in Asia and Europe fell 1 to 2 percent. The move was the latest escalation in the trade dispute between Washington and Beijing. Last week, President Trump pledged to impose tariffs on another $300 billion of imports from China, dashing hopes that a truce between the countries might be in reach.
The brunt of the selling hit parts of the market especially sensitive to the ongoing trade battle between Beijing and Washington. The information technology sector, which includes tech giants such as Apple and Microsoft, fell nearly 3 percent. Semiconductor stocks fell more than 3 percent. The S&P industrial sector dropped almost 2 percent. “That has just totally disintegrated,” said Ryan Detrick, senior market strategist at LPL Financial. “Now China is just clearly firing back and that has people uncomfortable.”
Monday’s drop undercut hopes for a quick recovery from a downdraft last week, when the S&P 500 lost 3.1 percent and logged its worst weekly performance of 2019. The S&P 500 dropped more than 2 percent in early trading on Monday, with selling especially heavy in the trade-sensitive technology, consumer discretionary and industrial sectors, all of which dropped at least 2 percent. Semiconductor stocks fell more than 4 percent.
The worldwide stock sell-off came after China’s central bank let the renminbi fall past the psychologically significant point of 7 to the American dollar for the first time since 2008. The move appeared to signal that Beijing was digging in for a long fight with the United States on the issue of trade just days after President Trump threatened a new round of tariffs on Chinese goods amid the two countries’ continuing dispute. The rout on Wall Street followed an overnight sell-off in Asian and European markets, after China’s tightly controlled currency, the renminbi, dipped more than 1 percent against the dollar and crossed the psychologically important barrier of 7 per dollar.
The People’s Bank of China, in a bluntly worded statement on Monday, tied the currency fall to Mr. Trump’s “unilateralism and trade protectionism measures and the imposition of increased tariffs on China.” On Monday morning, the renminbi was trading in mainland China at roughly 7.02 to the dollar, compared with about 6.88 late on Friday. A move of that magnitude is considered quite large in the currency markets. But it was especially notable for the renminbi, which China has kept from crossing 7 for more than a decade. Beijing’s decision to let it fall was widely viewed as signal that China was girding for a protracted battle over trade, technology and economic hegemony with the United States.
Mr. Trump fired back in a message on Twitter on Monday, saying, “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” [Why the number 7 makes China’s currency a trade weapon.]
Stocks on Wall Street have been withering since a sudden announcement by Mr. Trump that he would add tariffs on another $300 billion of Chinese-made goods revived investors’ worries that the trade war would dampen global growth, and ultimately, the profits of American companies. The People’s Bank of China, in a bluntly worded statement on Monday, tied the currency’s dip to Mr. Trump’s “unilateralism and trade protectionism measures and the imposition of increased tariffs on China.”
The heightened tensions have also rattled investors around the world. Tokyo’s Nikkei 225 dropped 1.74 percent, Hong Kong’s Hang Seng fell 2.9 percent, the Kospi index in Seoul slid 2.6 percent and the Shanghai Composite Index dipped 1.6 percent. The continuing trade battle between the world’s two largest economies has slowed the global economy. And investors are acutely worried that it could begin to weigh on the less trade-dependent American domestic economy, which is experiencing its longest-ever expansion.
In afternoon trading in Europe, the FTSE 100 index was down about 2.1 percent, the Dax in Frankfurt had lost about 1.6 percent and the CAC 40 in France had declined 1.9 percent. Unemployment remains at a 50-year low in the United States, but there are reasons for concern. The pace of both economic and job growth have slowed in recent months. Business investment has been negative. On Monday, a key gauge of the services sector’s strength fell to its lowest level since late 2016.
Signs of economic softness have pushed investors to buy up government bonds, raising prices and driving yields, which move in the opposite direction, down sharply this year. On Monday, the yield on the 10-year Treasury note hovered near 1.77 percent. If it were to end the day there, it would be the lowest yield on the benchmark government bond this year.
The market declines on Monday undercut hopes for a quick rebound from the selling of last week — the S&P 500’s worst of the year. The poor performance came even as the Federal Reserve delivered a widely expected decision to cut its key monetary policy target rate by a quarter of a percentage point.
The tone struck by Jerome H. Powell, the Fed chair, at a news conference after the decision, however, appeared to underwhelm investors, who wanted to hear that policymakers were ready to continue cutting rates in the coming months. Mr. Powell’s description of the cut as a “mid-cycle adjustment to policy” suggested to some people that the central bank viewed rate cuts as temporary and tactical, rather than the start of a longer-term push.
“You’ve got trade policy escalating; you’ve got Fed policy uncertainty,” said Dan Clifton, a partner at Strategas Research Partners, a financial and economic consulting firm, adding that the market was “basically de-risking until you get clarity on really either one of those issues.”