Deepening Fears About The Global Economy Send Stocks Falling Again

Wall Street is poised for its worst year since the financial crisis as worries about trade wars and higher interest rates dent sentiment. AFP  File  Bryan R. Smith

Stocks take worst drop of the year as trade war flares

Traders and financial professionals work ahead of the closing bell on the floor on the New York Stock Exchange (NYSE), October 26, 2018 in New York City.

The S&P 500 fell 38 points, or 1.3%, to 2,842.

Financial companies also helped lift the market.

Equities had tumbled Monday after Beijing allowed the yuan to slide sharply against the dollar following US President Donald Trump's announcement that he would impose 10 percent tariffs on another $300 billion in Chinese goods starting September 1. Also, the Ministry of Commerce announced it was suspending promised purchases of American farm products. "Investors are very much concerned about the trade war and its expansion and that's certainly being manifested in the price to gold", Peter Cardillo, chief market economist at Spartan Capital Securities in NY, said, adding that nonetheless "investors need to be prudent and cautious".

Hours later, the U.S. Treasury Department officially designated China a currency manipulator.

As demand for bonds grew the 10-year Treasury yield took a nosedive on Wednesday, sinking below 1.63%. "They will tumble far more", said Rabobank in a report.

Wednesday's volatility was put down to investors' fears Trump's intractable trade war against China will continue inflicting more damage on the already fragile global economy. "China compromise is at risk of being snuffed out completely", said Han Tan, Market Analyst at FXTM. The Nasdaq fell 185 points, or 2.3%, to 7,819. Apple shares were up by 1.9 percent. Australia's S&P/ASX 200 added 0.6% to 6,519.50.

Big technology stocks, longtime investor favorites, also posted hefty losses.

But the Dow industrials and the S&P 500 remain off more than 3% from their all-time closing highs, and analysts predict stocks will struggle to move meaningfully higher without a trade resolution or firm signs the USA and China are making progress toward a deal.

Both the S&P 500 and Nasdaq were able to notch gains, closing up 0.1 percent and 0.4 percent, respectively.

The sell-off began Monday in Asia, where indexes lost more than 1%, and intensified as it swept westward through Europe to the Americas. As stocks fall, investors typically pour money into safe assets such as government debt, pushing rates lower.

The yield on the 10-year Treasury note fell to its lowest level since 2016, down to 1.72% from 1.85% late Friday.

Meanwhile, investors sold stocks.

Oil prices picked up 37 cents to $55.06 US a barrel. The contract fell 97 cents on Monday to close at $54.69.

"China dropped the price of their currency to an nearly a historic low". It dropped $1.92 the previous session to $59.81.

"We had a little bit of recovery yesterday, but this morning we are seeing that stalling due to the PBOC fixing the dollar-yen higher again", said Thu Lan Nguyen, FX strategist at Commerzbank. The euro weakened to $1.1200 from $1.1202.

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