Stocks plunge for 2nd day on U.S.-China trade jitters

Stocks took a dive Tuesday morning in North America, amid increased anxiety over the tariff war between China and the U.S.

Beijing said its top economic adviser will go to Washington for trade talks despite U.S. President Donald Trump’s threat to raise tariffs by the end of the week, but China hinted at retaliation for the aggressive tactics.

Investors fear the world’s two largest economies will fail to reach a compromise and the fallout will be a downturn in global growth.

The Dow and S&P indexes fell 1.5 per cent, with the Dow off 389 points and the broader S&P losing 44 points at mid-morning. The Nasdaq fell more steeply, losing 1.8 per cent or 150 points, as tech stocks are heavily exposed to China.

In Toronto, the TSX lost 125 points to 16,368 as oil fell in response to the trade tensions.

The main North American crude contract, West Texas Intermediate, was down 94 cents at $61.30 US a barrel, while Brent crude fell $1.12 to $70.12 US.

Benchmarks in London and Tokyo declined, while Shanghai, Hong Kong and Sydney rose.

‘Framework agreement reached’

The Chinese government said Vice Premier Liu He will go to Washington as planned, dispelling fears he might cancel after Trump threatened to escalate a fight. 

“The base case still remains we see a framework agreement reached, but the market is still re-pricing in the risk,” Edward Moya of Oanda said in a report.

In early trading, London’s FTSE 100 lost 1.6 per cent and Tokyo’s Nikkei 225 plunged 1.5 per cent as trading resumed following a week-long holiday.

The Euro Stoxx composite index fell 1.8 per cent after the European Union’s executive commission trimmed its forecast for eurozone economic growth this year to 1.2 per cent from 1.3 per cent.

The Shanghai Composite Index gained 0.7 per cent to 2,926.39 and Hong Kong’s Hang Seng added 0.5 per cent to 29,363.02. Sydney’s S&P-ASX 200 picked up 0.2 per cent to 6,295.70 and benchmarks in New Zealand, Taiwan and Singapore advanced.

India’s Sensex was off 26 points at 38,580.44.

Beijing is not a big fan of hostage situations.– Vishnu Varathan, Mizuhu Bank

Trump’s threat Sunday revived jitters that had been largely put to rest by statements from both sides that negotiations were making progress. The American president accused Beijing of backtracking on commitments made in the rapid-fire negotiations.

Trump threatened to raise tariffs on $200 billion of Chinese goods to 25 per cent from 10 per cent, effective Friday. He said he would impose increases on an additional $325 billion of imports, covering everything China sells to the United States.

“Beijing is not a big fan of hostage situations,” said Vishnu Varathan of Mizuho Bank in a report. “The tight deadline alongside threats of widening the tariff net may not play out favourably for prospects of an imminent deal.”

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