The Monday Market Minute

  • Global stocks plunge as President Trump threatens to hike tariffs on China-made goods in a weekend Tweet that threatens to upend trade talks between the world's two biggest economies.
  • Just days after saying talks had been "going along pretty well", Trump said tariffs on $200 billion worth of goods could be imposed by Friday, with levies on a further $325 billion to follow "shortly"
  • Multiple media reports suggest China may walk away from a scheduled meeting in Washington this week, with state-controlled media urging Vice Premier Liu He not to take the 100-strong delegation to the White House.
  • Global oil prices fall sharply on growth concerns, following on from last week's declines, with U.S. crude now 9% from its late April peak.
  • U.S. stocks set for their biggest single-day decline of the year Monday with the Dow priced for a near 500 point plunge as investors dump risk in markets all over the world.

Market Snapshot

Global stocks plunged Monday, pulling U.S. equity futures sharply into the red, following a weekend Tweet from President Donald Trump that threatens to upend trade talks with China just days after saying negotiations between the world's two biggest economies were "going very well".

Trump Tweeted Sunday that tariffs on $200 billion worth of China made goods would rise from 10% to 25% by the end of this week, and added that a similar levy on another $325 billion could be placed on China imports "shortly". Trump incorrectly claimed that China was paying tariffs to the United States, and characterized the talks, which were renewed with much fanfare in early December, had been moving "too slowly".

The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we're not going to be doing that anymore!

— Donald J. Trump (@realDonaldTrump) May 6, 2019

China shares plunged on the news, as investors returned from a three-day market holiday to find massive concern over the fate of the talks and the impact failure could have on an already-sputtering economy. The Shanghai Composite fell more than 6% during the session's trough, before booking its biggest single-day slump in three years to close 5.66% lower at 2,904.13 points. Hong Kong's Hang Seng fell 2.93% to 29,200 points while Japan's Nikkei 225, the region's most liquid benchmark, remains closed for an extended national holiday to mark the coronation of Emperor Naruhito.

Multiple media reports suggested Trump's Tweets would scupper a planned visit to Washington this week by China's Vice Premier, Liu He, and a 100-strong delegation of trade representatives, but the country's Foreign Ministry said Monday that the trip was still on, although the department's spokesperson did not confirm Liu's participation.

For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars....

— Donald J. Trump (@realDonaldTrump) May 5, 2019

....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!

— Donald J. Trump (@realDonaldTrump) May 5, 2019

"While it remains to be seen whether the Trump administration will press ahead with the added tariffs, it's already evident that markets are taking some risk off the table, undermining the base case that investors had been pricing in: a formalized US-China trade deal in the near future," said FXTM market analyst Han Tan. "With Chinese Vice Premier Liu He scheduled to lead a delegation to Washington this week, the timing of the tweets also suggests that President Trump is attempting to push through an immediate resolution to the drawn-out talks."

"This latest development once again demonstrates how Trump's tweets can be a wild card for any attempt to formulate a lasting outlook on global growth, as trade tensions remain a key overhang for markets," he added.

European stocks were also notably weaker at the start of trading Monday, although regional liquidity was thinner-than-usual owing to a national holiday in the United Kingdom that will keep London markets closed while limiting bond and currency market trading.

Germany's DAX performance index was marked 1.95% lower at 12,170.93 points by mid-day of trading in Frankfurt while the CAC-40 in Paris was seen 2.04% lower at 5,436.51 points, with auto stocks leading the declines on both benchmarks.

U.S. equity futures suggest the overnight moves in both Asia and Europe could trigger the biggest single-day decline on Wall Street since January 3, with contracts tied to the Dow Jones Industrial Average indicating a 460 point decline and those linked to the S&P 500 guiding to a 47 point retreat for the broader benchmark. Nasdaq Composite futures suggest a 152 point slide for the tech-focused index.

Global oil prices were also hit by Trump's Tweets, and the risk-market sell-off they triggered, with crude extending declines from last week's sharp sell-off as investors factored in the possibility of weaker demand from China and record-high U.S. production rates, which hit 12.3 million barrels a day for the week ending April 26.

Brent crude contracts for July delivery, the global benchmark for oil prices, were marked 20 cents lower from their Friday close in New York and changing hands at $70.65 per barrel while WTI contracts for June were seen 38 cents lower at $61.56 per barrel.

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