US stocks are set to open deep in the red on Monday, as Dow Jones Industrial Average (DJIA) futures fell more than 300 points lower. Stock markets are in free fall around the world after China hit back at Trump’s proposed tariffs and Twitter threats.
The Chinese government let the yuan fall to an 11-year low on Monday, effectively sticking a middle finger up at Donald Trump. China also instructed its state-owned companies to stop buying US agricultural goods.
The trade war is firmly back on.
Dow futures in triple-digit collapse
Dow Jones Industrial Average (DJIA) futures fell as low as 26,080 on Monday before briefly recovering. At 6.01 am ET, the index remained more than 1 percent lower, pointing to a weak open on Wall Street.
It comes after a bloodbath on the Asian markets which saw the Shanghai Composite and Japan’s Nikkei plunge more than 1 percent each.
S&P 500 futures look similarly weak, down 1.09 percent at 2,900 while Nasdaq Composite futures slid 1.46 percent to 7,589.
China “weaponizes” the yuan
Today’s headlines are dominated by the yuan’s fall beyond $7 – a crucial psychological level and a figure not seen since the global financial crisis 11 years ago.
China’s yuan sinks beyond 7 per dollar for the first time in more than a decade after the central bank weakens its daily currency fixing past a key level https://t.co/djFooolnPy pic.twitter.com/ChH8j6XLxB
— Bloomberg (@business) August 5, 2019
This fall is considered a retaliatory move by the Chinese government. China’s central bank shifted the currency’s midpoint on Monday to 6.9225 against the dollar, triggering a broader weakening. As Julian Evans-Pritchard at Capital Economics explains:
“[The People’s Bank of China (PBOC)] has effectively weaponized the exchange rate.”
A weaker yuan make China a more attractive destination for investment and trade. Trump has repeatedly slammed China for devaluing its currency, so today’s move is clearly designed to anger the US president.
China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!
— Donald J. Trump (@realDonaldTrump) July 3, 2019
Dow crumbles as China chokes agriculture imports
The other factor in today’s selloff is China’s decision to halt US agriculture imports. China had previously agreed to buy more US agricultural goods as part of the trade deal negotiations. The government has now pulled that rug out from under Trump.
The Chinese government has asked state-owned firms to halt agriculture purchases from the US. Alongside the devaluation of the yuan, it’s a clear middle finger up to Donald Trump.
“I think this is clearly a retaliation” – Claudio Piron at Bank of America Merrill Lynch.
Asian stock markets take a hit
The news hit Asian stocks hard on Monday. The Shanghai Composite traded 1.63 percent lower while Japan’s Nikkei slid 1.74 percent. Safe haven assets like gold, Treasury bonds, and even bitcoin ticked higher in response to market volatility.
Hong Kong’s Hang Seng index fell even further as violence in the city increased over the weekend. All that remains is to see how Donald Trump reacts when he walks into the Oval Office on Monday.