Dow suffers worst fall of year as US-China trade war flares


August 06, 2019 06:21:25

The Dow Jones Industrial Average has tumbled more than 700 points in a global selloff, in its worst drop of the year.

The fall was triggered by China’s willingness to let the yuan slide in response to the latest US threats on trade.

Key points:

  • The Dow Jones Industrial Average sank 800 points on Monday, its worst drop in 2019
  • Technology companies and banks were hardest hit
  • The Japanese yen, gold and government bonds rallied as investors turned from risks

China on Monday let the yuan tumble beyond the key 7-per-$US1 (7 yuan-per-$1.46) level for the first time in more than a decade.

It is a sign Beijing might be willing to tolerate further currency weakness after US President Donald Trump vowed last week to impose 10 per cent tariffs on the remaining $US300 billion of Chinese imports ($443.6 billion) from September 1.

Technology companies and banks fell the most. Apple and Bank of America each fell 5 per cent.

Bond prices soared, sending yields sharply lower, as investors sought safety.

The Dow lost 850 points, or 3.2 per cent, to 25,629.

The S&P 500 fell 93 points, or 3.2 per cent, to 2,837.

The Nasdaq fell 309 points, or 3.9 per cent, to 7,694.

Safe-haven assets, including the Japanese yen, government bonds and gold, rallied as investors cut back on riskier assets.

“I think there’s a sense that President Trump might try and escalate in terms of a reaction, if he thinks that this was a deliberate move by the Chinese to try and weaken their currency artificially,” said Brian Daingerfield, head of G10 FX strategy for the Americas at NatWest Markets in Connecticut.

Against the Japanese yen, the US dollar fell 0.56 per cent to its lowest level since a January flash crash.

Trade war also hurts oil prices

Worries about a slowdown in global growth due to an extended trade conflict also hurt oil prices.

“The escalation in the US-China trade is another negative for the oil demand outlook, as the fallout from the spat continues to greatly impact the Asian economic region, which is key to the oil demand outlook,” said John Kilduff, partner at Again Capital Management.

Brent crude futures were down $US1.87, or 3.02 per cent, to $US60.02 per barrel, while US West Texas Intermediate (WTI) crude futures were down $US0.71 cents, or 1.28 per cent, to $US54.95 a barrel.

Gold rose to more than a six-year high. Spot gold was up 1.68 per cent at $US1,464.60 per ounce.

US Treasury yields tumbled, with 10-year yields hitting their lowest level since November 2016, on the safety bid.

The yields on benchmark 10-year Treasury notes were down 12.56 basis points at 1.7294 per cent.













First posted

August 06, 2019 05:53:18

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