THE LATEST escalation in the trade war between the United States and China rattled global markets again on Wednesday, with Treasuries and the U.S. dollar falling in a selloff of some U.S. assets.
U.S. stocks edged higher in early New York trading, however, led by a more than 1% rise in the Nasdaq and with technology (.SPLRCT), opens new tab leading gains among S&P 500 sectors.
U.S. President Donald Trump’s eye-watering 104% tariffs on China came into effect on Wednesday, prompting a swift retaliation from Beijing in the form of duties of 84% on U.S. imports.
U.S. Treasuries saw fresh selling pressure Wednesday in a sign that investors were dumping their safest assets and heading for cash.
The violent selloff in Treasuries was reminiscent for some of the dash-for-cash at the onset of the COVID-19 pandemic in March 2020, and it reignited fears of fragility in the world’s biggest bond market.
Many investors worry that Trump’s wide-ranging tariffs will be severe enough to trigger a recession and force the Federal Reserve into cutting interest rates, and so they dumped their Treasury holdings, driving up yields as bond prices dropped.
The seemingly wholesale push out of Treasuries and the dollar – effectively the backbone of the global financial system – could be symptomatic of a broader loss in investor desire to hold U.S. assets in general and “the end of an era”, according to Deutsche Bank head of foreign exchange research George Saravelos.
“We are witnessing a simultaneous collapse in the price of all U.S. assets including equities, the dollar versus alternative reserve FX and the bond market. We are entering uncharted territory in the global financial system,” he said.
The dollar – often a safe haven in times of turmoil – fell broadly, while investors fled to the Swiss franc and gold.
“This seemingly ‘sell America’ trade is one that’s now dominating the rising recession risk theme that typically would have pushed yields down,” economists at ING said.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.5% to 102.26, with the euro up 0.78% at $1.1037. Against the Japanese yen, the dollar weakened 0.98% to 144.84.
Against the Swiss franc, the dollar weakened 1.01% to 0.839. Spot gold rose 3.03% to $3,074.35 an ounce.
The yield on benchmark U.S. 10-year notes rose 12.4 basis points to 4.384%, from 4.26% late on Tuesday.
Potentially adding to the pressure on Treasuries was an auction of new 10-year notes later on Wednesday – hot on the heels of a weak three-year sale the day before – that could prove a crucial litmus test of investor appetite for U.S. government debt.
Us stocks rise early
U.S. stocks were in positive territory early, with investors weighing whether recent sharp selling may have been overdone, although trading remained choppy as it has been all week.
As of Tuesday’s close, S&P 500 companies had lost $5.8 trillion in stock market value since Trump’s tariff announcement late last Wednesday, the deepest four-day loss since the benchmark was created in the 1950s, according to LSEG data.
The Cboe Volatility index (.VIX), opens new tab, Wall Street’s fear gauge, was down. This week, it had reached to its highest since August.
The Dow Jones Industrial Average (.DJI), opens new tab rose 65.18 points, or 0.18%, to 37,710.77, the S&P 500 (.SPX), opens new tab rose 20.39 points, or 0.42%, to 5,003.55 and the Nasdaq Composite (.IXIC), opens new tab rose 180.63 points, or 1.18%, to 15,448.54.
MSCI’s gauge of stocks across the globe (.MIWD00000PUS), opens new tab fell 1.90 points, or 0.26%, to 741.06. The pan-European STOXX 600 (.STOXX), opens new tab index fell 2.97%.
Analysts at JPMorgan believed the rapid escalation in U.S. tariffs on China would be sufficiently disruptive to push the global economy into recession.
“Given the import bill from China, the China tariff alone amounts to a whopping $400 billion tax hike on U.S. households and businesses,” they said in a note to clients. “The currency is likely to be a release valve for China policymakers.”
Oil prices tumbled as concern over the outlook for global energy demand outweighed any nervousness on the geopolitical front.
U.S. crude fell 3.83% to $57.30 a barrel and Brent fell to $60.51 per barrel, down 3.68% on the day.
Reuters
