<![CDATA[US stocks plummet as China announces trade war retaliation involving currency value and farm purchases]>
US stocks plunged on Monday as the trade war between the world's two largest economies escalated, with China retaliating against the latest tariff threat by US President Donald Trump.
"China's retaliatory strategy to the US appears to be death by a thousand cuts. China has methodically delivered a wave of negative news that is hitting President Trump where it hurts, the US stock market," Edward Moya at foreign exchange broker Oanda Corp wrote on Monday.
Technology stocks were among the hardest hit, as the sector stands to suffer more than others if the trade war continues to escalate. Apple fell more than 5 per cent and Intel 3.5 per cent.
Trader James Coffey on the floor of the New York Stock Exchange on Monday. Photo: AP alt=Trader James Coffey on the floor of the New York Stock Exchange on Monday. Photo: AP
"Apple is the poster child of the trade war," said Dan Ives, a tech analyst at Wedbush Securities. "This is a clear gut punch as Apple has bet the farm on China both from a demand and supply perspective."
"Investors are running scared with their hair on fire given this trade battle, and Apple has a bullseye on their back," Ives added. "I think it's an overreaction, but investors are going to sell first and worry about it later."
China, which has typically held its currency steady, on Monday let its yuan sink to the lowest level against the US dollar in 11 years. The yuan has exceeded seven to each US dollar, a key psychological threshold.
That move was considered a strong message by Beijing to Washington that China was prepared to use its currency as a weapon in the trade war. A weaker currency can help China remain competitive in exports.
Shortly after midday in New York, Beijing also announced that it was suspending the purchase of American agricultural products and "has not ruled out import tariffs on US agricultural products purchased after August 3," state news agency Xinhua said.
In a note to investors, Chris Krueger of the investment banking firm Cowen called the currency move "a massive Chinese retaliation".
"On a scale of 1-10, it's an 11," he said.
"Overnight, the Chinese government retaliated against new US tariffs, and it's designed to get the president's attention," Krueger added.
On Friday, Trump announced that the US would impose 10 per cent tariffs on the remainder of US$300 billion worth of Chinese goods starting September 1.
A trader reacts on the floor at the New York Stock Exchange on Monday. Photo: Reuters alt=A trader reacts on the floor at the New York Stock Exchange on Monday. Photo: Reuters
On Monday, Trump tweeted: "China is intent on continuing to receive the hundreds of Billions of Dollars they have been taking from the US with unfair trade practices and currency manipulation."
"So one-sided, it should have been stopped many years ago! ... used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers' wages and harm our farmers' prices. Not anymore!"
The US has long complained about the weakness of China's currency, but labelling China a "currency manipulator" marked another departure from the earlier restraint US government has shown just a few months ago, another sign investors took to mean further trade escalation.
Responding to Monday's escalation in the trade war, former US Treasury secretary Henry Paulson urged the Chinese government "to show restraint and work to maintain a stable currency in the interests of global financial stability".
In March, the US refused to formally accuse China of currency manipulation. Instead, it kept China on a watch list alongside Germany, Ireland, Italy, Japan, Malaysia, Singapore, South Korea and Vietnam.
Wall Street is coming off of its worst week of the year after Trump threatened more tariffs on Chinese goods after negotiators led by Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer returned from the latest round of talks in Shanghai last week.
Trump's anger toward China boiled over after the negotiators briefed him that Beijing offered no new proposals for ending the impasse, Politico reported.
Some analysts think this correction could still be short lived.
"The remainder of August could get messy, but we should not be surprised if we see institutional interest return strongly if we see 5 per cent more" in stock price correction, wrote Oanda's Moya.
Steven Englander, global head of FX research at Standard Chartered Bank in New York, said: "If we started seeing other emerging market currencies' depreciation taking place, and then leapfrogging of the [Chinese yuan] depreciation, we would see more impact," but right now "this is painful but it is contained", he added.
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.
