Dow falls 250 points, S&P set for fourth-straight day of losses after Trump claims China ‘broke the deal’

Stocks extended their weeklong decline at the start of trade Thursday, as trade tensions ramped up after U.S. President Donald Trump threatened tariff retaliation on China, which he claims “broke the deal”.

How are the benchmark indexes faring?
The Dow Jones Industrial Average DJIA, -1.60% fell 270 points, or 1%, to 25,695, while the S&P 500 index SPX, -1.44% dropped 31 points, or 1.1%, to 2,848. The Nasdaq Composite Index COMP, -1.77% slid 102 points, or 1.3%, to 7,841.

Stocks fell toward the closing bell on Wednesday. The Dow Jones Industrial Average stood out with a gain of 2.24 points to 25,967.33, but the S&P 500 fell 0.2% to 2,879.42, while the Nasdaq Composite Index dropped 0.3% to 7,943.32.

The week so far has seen all three major indexes drop by at least 2%. And Tuesday marked a particularly tough session for stocks, with the Dow suffering its biggest percentage drop since Jan. 3, while both the Nasdaq and the S&P 500 are on track to post four-straight losing sessions.

What’s driving the market?
Anxiety over the prospect of a deepening trade dispute between the U.S. and China has weighed on markets all week after President Donald Trump voiced frustration over the pace of talks in a Sunday tweet, and those fears were compounded Wednesday evening when the president accused the Chinese of negotiating in bad faith, and reneging on commitments made in previous rounds of negotiation.

As a result, the White House has threatened to raise tariffs on $200 billion in annual Chinese exports to the U.S. to 25% from the current 10% at 12:01 Eastern Time of Friday. “You see the tariffs we’re doing? Because they broke the deal. They broke the deal,” Trump said at a rally in Florida Wednesday evening. “They can’t do that, so they’ll be paying.”

Beijing’s top trade envoys, including Vice Premier Liu He, will head to Washington on Thursday to resume negotiations. But a tweet late Wednesday by Hu Xijin, the editor in chief of China’s Global Times, said those officials are going simply because they were invited. The tabloid is published by the Ruling Communist Party’s People’s Daily.

Meanwhile, China indicated that it wouldn’t take such action lying down. “China deeply regrets that if the U.S. tariff measures are carried out, China will have to take necessary countermeasures,” said the Commerce Ministry in a statement, without providing specific details, according to the AP.

The rift has come amid accusations by the U.S. that China has been trying to back out of already agreed measures, prompting Trump to slap higher tariffs on the country. China has taken a tougher stance on negotiations because officials believed the U.S. was ready to compromise, based on recent actions and comments by Trump, The Wall Street Journal reported.

Nevertheless, many investors an analysts continue to believe that a deal will be reached at some point in the coming weeks and months, given that a deal of some sort that reduces fear that additional trade barriers will be put in place would be beneficial to both the U.S. and Chinese economies.

What are analysts saying?
Before Trump’s Sunday tweet, when greater tariffs were threatened, “our sources in Washington were anticipating a ‘weak’ deal with few genuine Chinese concessions,” wrote James, Sweeney, chief economist for Credit Suisse, in a note to clients.

“Moreover, no large institutional investors were predicting – at least publicly – an imminent tariff increase,” he added. “While the tweet led to a selloff in China’s equity markets on Monday, the relatively muted market reaction in Europe and the U.S.A. suggests that a largetariff increase remains a tail risk rather than a base-case scenario.”

“Trade negotiating tactics are clearly being used by both the U.S. and China,” wrote Edward Moya, senior market analyst at Oanda, in a Thursday research note. “Give-and-take was to be expected by both sides as we near an ultimate conclusion to a trade deal. Recent obstacles have seen the risk of a total collapse grow which means we could be finally nearing a deal.”

“While the base case remains for a deal to be reached, the timing is uncertain, but likely to occur by early June at the latest.” he added. “If we see a disastrous outcome this week, we could see a 10% correction with U.S. equities. A framework agreement is likely to see stocks attempt another run at making fresh record highs.”

MarketWatch

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya