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Stock markets including the Dow and Nasdaq were hit with losses after U.S. President Trump announced a 10% increase in tariffs of about $300 billion worth of Chinese imports. Several retail stocks were also affected.
The trade war between the U.S. and China which seemed to be slowly reaching a resolve has begun heating up again. This time, it has negatively impacted the DOW and other stock markets as they all took a hit after President Donald Trump made fresh threats, targeting imports from China worth up to $300 billion. Apparently, the dialogue between representatives of both countries which took place recently in Shanghai yielded no result.
Stock Markets Pull Back
On Thursday the 1st of August, Wall Street experienced drops in trading which was significant because earlier in the day, the Dow surged by 256.14 points (0.95%) probably as a reaction to the cuts on interest rates by the Federal Reserve. However, the Dow Jones Industrial Average eventually plummeted by 241.66% (0.9%) to 26,622.61.
The entire S&P 500 Index also took a hit, falling down to 2,960.42, a loss of about 0.7%. Specifics have it that of all the 11 primary sectors in the market, at least seven recorded significant losses with as much as 2% in the energy, financial and industrial sectors. On the Nasdaq Composite Index, technology stocks also plunged to 8,120.92, losing 0.7% after a leap higher than 1.6%.
In the same period, quite a few retail stocks also experienced drops. Apple lost 2.2%, Nike lost 3.4% and Yeti Holdings lost as much as 7%. FedEx was also impacted as its own shares fell by 4.2% with Caterpillar losing 3.71% as well.
This much instability was corroborated by the Cboe Volatility Index – a widely used measure of volatility in the stock market – as it surged more than 13% to 18.0, its highest level since June 4.
According to WallachBeth Capital’s Senior Strategist, Ilya Feygin:
“People are trading very nervously. They are overreacting to every little piece of news.”
Tariff Increased Amidst Optimism
On Thursday in a series of tweets, President Trump began by announcing that China decided to re-negotiate a deal that had been initiated and nearly concluded three months ago. Trump also tweeted that Chinese President Xi Jinping, had not kept his word regarding the sale of the Fentanyl drug to the U.S, along with reneging on an agreement for China to purchase more agricultural products from the U.S.
On this account, Trump then announced that even though there would be a continued dialogue with China, there will also be “additional tariff of 10% on the remaining 300 billion dollars of goods and products coming from China into our country.” He further added that “this does not include the 250 billion dollars already tariffed at 25%.
Investment is Suffering
According to an independent economic data and policy research provider, Rhodium Group, investment levels between both countries are now at their lowest point in the last five years, since 2014. Specifically, direct and venture capital investments for the first half of 2019 sits at $13 billion.
This is a heavy 18% reduction from 2018’s second half investment figure. If the U.S. continues with the increased tariff and the Cboe also increases, 2019 might shape up to be a bad year for China/U.S. investment.