Dow Jones sheds as Trump escalates tariffs between US and China

The Dow Jones Industrial Average plunged deep into the red overnight, shedding more than 2.3 per cent after US President Donald Trump ramped up the trade war.

He demanded American companies seek alternatives to doing business with China in reaction to Beijing announcing a new round of tariffs of their own on $75 billion in US goods.

The latest exchanges in the long-running trade row triggered a broadbased sell-off that hit shares of companies with high exposure to China the hardest, such as chipmakers and other top technology names.

Dow Jones Industrials components Intel and Apple dropped 3.9 per cent and 4.6 per cent respectively on Friday.

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The sell-off marked the third decline of more than two per cent for the S&P 500 so far in August, and the benchmark index has now shed 5.8 per cent in the last four weeks.

The Dow Jones Industrial Average fell 623.34 points, or 2.37 per cent, to 25,628.9, the S&P 500 lost 75.84 points, or 2.59 per cent, to 2847.11 and the tech heavy Nasdaq Composite dropped 239.62 points, or three per cent, to 7751.77.

All 11 major sectors in the S&P 500 ended the session in negative territory.

Mr Trump also announced after the market closed the US would increase existing tariffs on $250 billion in Chinese goods to 30 per cent from 25 per cent, and that tariffs on additional goods expected to kick in on September 1 would be at 15 per cent instead of 10 per cent.

Those announcements are likely to influence stock markets in Australia and Asia when trading opens on Monday.

The markets opened lower on Friday in the US in reaction to the tariffs imposed by China but had recovered slightly after a highly anticipated speech from US Federal Reserve Chair Jerome Powell.

He pledged the central bank would “act as appropriate” to support the economy, indicating he was prepared to cut interest rates but gave no clear signal on when and by how much.

Mr Powell said that there’s growing evidence of a global economic slowdown and suggested that uncertainty over Mr Trump’s trade wars have complicated the central bank’s ability to set interest rate policy.

This infuriated the president who labelled his boss of the central bank an “enemy”.

David Katz, chief investment officer at Matrix Asset Advisers in New York, said the president was clearly upset.

“(Trump) seems to be irate that China reacted to what the US has done and is basically having a mini-tantrum and is angry at everybody,” he said.

“He’s angry at China, he’s trying to put the blame on the market and the economy on Powell.

“But at this point, it’s very clear … that the issues that have been coming to fruition of late with the economy and the slowdown are all trade-related and have very little to do with the Fed,” Katz added.

Bernard Baumohl, managing director and chief global economist at the Economic Outlook Group in Princeton, agreed.

“The biggest folly is the belief that lowering interest rates by 25 or 50 bp will do anything to revive the economy,” Baumohlsaid.

“Don’t ask the Federal Reserve to bail out the economy, because they’re not going to be able to do it this time.”

Trump also said Friday morning that he was “ordering” UPS, Federal Express and Amazon to block any deliveries from China of the powerful opioid drug fentanyl.

The stocks of all three companies fell as traders tried to assess the possible implications.

Matt Arnold, an analyst who covers FedEx and UPS for Edward Jones, said it could be difficult for the companies to comply should the administration draft detailed guidelines for rooting out fentanyl.

“There are just too many instances in which the package contents can’t be known or verified,” he said. “It’s difficult to picture a scenario where UPS and FedEx are all that well-equipped to detect something like this.”

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Source link Finance News Australia

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