Trump's trade war with China takes its toll on world markets

• Fresh tariff threats batter global stocks
• Industrials, materials sectors among worst sectors
• US bonds rally, commodities fall

Global stocks dropped as President Donald Trump’s trade war against China intensified, sparking selloffs from Shanghai to New York.

Chinese stocks logged one of their steepest declines this year while Wall Street’s Dow Jones Industrial Average tumbled more than 1%,

In Europe, stocks of major exporters in Germany and France slumped more than 1.5%.

In other markets, US bonds rallied while a range of commodities, including oil, fell.

Wall Street opened with the Dow down more 300 points after Asian investors sent the Shanghai Composite Index plunging 3.8% to its lowest level in almost two years.

In a Monday night announcement, Mr Trump called for $US200 billion in Chinese exports to be identified for a fresh round of tariffs. He also warned that amount would double to $US400b if China made any further response to the additional tariffs.

A first round of tariffs is due to be implemented on July 6 based on US claims of intellectual property violations by the Chinese.

Caution urged
Edward Jones investment strategist Kate Warne cautioned investors against changing their holdings substantially given that the tariff threats might not actually take place.

“It’s hard to tell whether these announcements are all negotiating positions and we’ll see some set of discussions to basically lower the temperature,” she says.

The US dollar rose and government bond prices rallied, sending the yield gap between the two- and 10-year Treasury notes to its narrowest level since August 2007. A narrowing yield gap often indicates a pessimistic outlook among investors.

The 10-year Treasury yield declined to 2.88% from 2.926% on Monday.

Pictet Wealth Management fixed-income strategist Lauréline Chatelain says yields could fall further.

“The Fed could be forced to pause its hiking cycle,” she says. “In this scenario, it would be more important to watch the impact of tariffs on US payrolls and business confidence.”

Dow loses 287 points
Wall Street closed with the Dow down 287.26 points, or 1.15%, at 24,700.21, pulled down by falls of more than 3% by industrial heavyweight exporters Caterpillar, Boeing and Deere.  

The S&P 500 was down 0.4% at 2762.57 while the Nasdaq Composite shed 0.3% to 7725.59.

A range of commodities fell. Iron ore futures traded in Dalian, China, fell 4.6% while rubber futures in Shanghai were off 5.7%. London Metal Exchange copper futures fell 1.79%.

US soybean prices fell more than 5% to the lowest point in two years. Soy exports to China have been targeted for tariffs.

US crude futures fell 1.9% to $US64.62 a barrel while Brent, the global oil benchmark, dropped 0.9% to $US74.70 a barrel.

Export-focused stocks were hit hardest in Europe. The Stoxx 600 index fell 0.7% but its industrial goods and services sector and the autos and parts sector were down 1.6% and 1.7% respectively.

Germany’s DAX index fell 1.2%, France’s CAC 40 also shed 1.2% while the UK’s FTSE 100 was down 0.4%.