Stocks Sell-Off to Hit Asia as China Strikes Back: Markets Wrap

(Bloomberg) -- The sell-off that sank U.S. stocks and global commodities is set to spill into Asia after China retaliated with higher tariffs on a range of American goods. Treasuries jumped with the yen on demand for haven assets.

Futures flagged shares will fall when markets open in Tokyo and Sydney. All three major U.S. benchmarks ended more than 2 percent lower, only the second time this year that’s happened, after China targeted some of the biggest U.S. exporters in response to American tariffs. The new penalties also took aim at American farmers, driving down soybean and cotton prices. The dollar rallied and the 10-year Treasury yield fell to the lowest level since late March. U.S. equity futures steadied in early Asia trading.

The S&P 500 Index dropped the most in four months and the Nasdaq Composite saw its biggest decline of the year. Investors got a brief respite from the sell-off after President Donald Trump indicated he’ll speak with China’s Xi Jinping at the end of June during the G-20 summit and said he hasn’t yet decided about fresh tariffs on the remaining $300 billion in Chinese imports.

The trade standoff is rattling global markets as China remains defiant in the face of warnings from Trump not to strike back after his imposition of higher tariffs Friday. Several strategists from banks including JPMorgan Chase & Co. and Morgan Stanley warned of the increased likelihood of a prolonged slowdown in global growth that would dent corporate profits. Meanwhile, investors are pricing in a Federal Reserve interest-rate cut this year as a near certainty.

“The escalation in the dispute is likely to more permanently dampen optimism that the global economy will soon rebound from its slowdown,” Greg Gibbs, founder of Amplifying Global FX Capital, said in a client note.

Elsewhere, European shares dropped more than 1% after the European Union said it was finalizing a list of U.S. goods to target in the event Trump imposes levies on car imports. Oil turned lower after rising earlier on concerns about rising tensions in the Persian Gulf. Bitcoin climbed above $8,000 as the recent gains in cryptocurrencies extended over the weekend.

Here are some notable events coming up this week:

  • Earnings this week include Vodafone, Alibaba, Tencent, Cisco, Nvidia.
  • 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

  • Futures on the Nikkei 225 slid 1.9% in Singapore.
  • Australia’s S&P/ASX 200 Index futures dropped 0.9 percent.
  • Hong Kong’s Hang Seng Index futures fell 0.5%. The market was closed for a holiday Monday.
  • S&P 500 futures fell 0.1 percent. Earlier, the S&P 500 Index fell 2.4%.
  • The Nasdaq Composite Index tumbled 3.4%, the largest drop since Dec. 4.
  • The Stoxx Europe 600 Index fell 1.2% to the lowest in two months.

Currencies

  • The yen rose 0.1% to 109.23 per dollar after jumping 0.6%.
  • The yuan slipped 0.1% to 6.9178 per dollar, holding on to a 1% slide.
  • Bloomberg Dollar Spot Index rose 0.2%.
  • The euro was little changed at $1.1224.
  • The Australian dollar was at 69.42 U.S. cents after tumbling 0.8 percent.

Bonds

  • The yield on 10-year Treasuries fell seven basis points to 2.4%, the lowest since March 28.

Commodities

  • West Texas Intermediate crude dropped 1.3% to $60.84 a barrel.
  • Gold increased 1.1% to $1,299.93 an ounce.

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