Stocks fall as Trump dials up US-China tensions

Stocks fall as Trump dials up US-China tensions

Stock markets fell on Friday as tensions between the US and China reached new heights after Donald Trump demanded US companies seek “an alternative” to China in response to Beijing’s latest volley of tariffs.

Beijing said on Friday it would apply additional levies of between 5 and 10 per cent on $75bn of US imports from September, marking the latest escalation in the tit-for-tat trade war between the two countries.

The US president responded by tweeting: “We don’t need China and, frankly, would be far better off without them.”

“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA.”

The S&P 500 fell sharply in response to the escalation, shedding 1.7 per cent. In Europe, the composite Stoxx 600 index dropped 0.9 per cent, with Germany’s Dax and France’s Cac both down 1.2 per cent, while in London the FTSE 100 fell 1 per cent.

US government bonds yields also fell, reversing earlier gains, as traders moved into the debt, which is regarded as a safety play in times of market stress. The yield on the US 10-year note fell 8 basis points to trade at 1.53 per cent, while the yield on the policy sensitive two-year note dropped 10 bps to 1.513 per cent.

The new Chinese tariffs were announced just ahead of a speech by US Federal Reserve chairman Jay Powell at the central bank’s annual meeting in Jackson Hole, Wyoming. In his address Mr Powell warned that fitting trade uncertainty into the central bank’s policy framework was “a new challenge”, emphasising the Fed had little ability to influence international trade negotiations.

He did not give any indication as to plans to cut interest rates, however, prompting President Trump to lash out and label him an “enemy”. “As usual, the Fed did nothing!” the president tweeted.

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