Dow closes down more than 750 points after trade war escalation
A dramatic escalation of the trade war between the United States and China sparked a worldwide sell-off in markets on Monday. The Dow closed down 767 points, and the Nasdaq Composite — a proxy for the technology companies that will be most harmed by a trade war — suffered its longest losing streak since November 2016.
The Chinese government devalued the yuan to fall below its 7-to-1 ratio with the US dollar for the first time in a decade Monday. A weaker currency could soften the tariff blow the United States has dealt China.
The weak yuan ignited fear on Wall Street that a currency war has begun or that the United States would respond with even higher tariffs, prolonging the standoff with China and potentially weakening the global economy. Investors are particularly concerned that the Trump administration could try to devalue the dollar, sparking a currency war that could weaken Americans’ purchasing power.
“Risks of Trump intervening in foreign exchange markets have increased with China letting the yuan go,” wrote Viraj Patel, FX and global macro strategist at Arkera, on Twitter. “If this was an all out currency war – the US would hands down lose. Beijing [is] far more advanced in playing the currency game [and has] bigger firepower.”
President Donald Trump once again called China a currency manipulator on Monday, saying the yuan devaluation was a “major violation.” Trump has long attacked China for its currency policy, even though the Treasury has refrained from officially labeling the country a currency manipulator.
China also announced Monday its companies have halted purchases of American agricultural goods. That helped to drive stocks even deeper into the red.
A day for the history books
At its worst, the Dow was down 961 points Monday. Even though the index clawed back some of its losses, it logged its worst day of the year, as well as its sixth-worst point drop in history.
The Dow finished down 2.9%, or 767 points, falling below 26,000 points for the first time since June. It has fallen five sessions in a row, marking the worst losing streak since March.
The benchmark S<><><><>&P 500 closed nearly 3% lower, also recording its worst day of the year. The index has declined for six days in a row for the first time since October./ppThe Nasdaq Composite finished down 3.5%, its biggest decline since October 24, 2018. The Nasdaq also logged its longest losing streak since November 2016, when it fell for nine-consecutive days in the lead-up to the presidential election./ppLast week, the S<><><><><><><><><>P 500 and the Nasdaq Composite logged their a href=”https://www.cnn.com/2019/08/02/investing/dow-stock-market-today/index.html” target=”_blank”worst week of the year/a./ppHit particularly hard were a href=”http://www.cnn.com/2019/08/05/investing/nasdaq-tech-stocks-losing-streak/index.html” target=”_blank”tech stocks/a. Apple, Intel, Microsoft, Nvidia and Advanced Micro Devices were among the biggest losers on Monday./ppThe VIX volatility index soared nearly 40% to a seven-month high. The CNN Business a href=”https://money.cnn.com/data/fear-and-greed/” target=”_blank”Fear <><><> Greed Index/a is indicating “Extreme Fear.”/ppAlthough Monday was a terrible day for the market, investors should put the losses into perspective. The Dow is still up more than 10% this year, while the S<><><><><><><><> <><><><><><><><><><><>P is up 13.5%. The Nasdaq has posted a gain of more than 16% in 2019 even after Monday’s selloff./ppAsian markets all fell more than 1.6% Monday, and Hong Kong’s Hang Seng closed down 2.9% as protests continue in the region. In Europe, London’s FTSE 100 finished down 2.5%. Germany’s DAX and France’ Cac 40 closed 1.8% and 2.2% lower, respectively./ppUS government bonds rose and yields fell as traders looked for safe investments. Bond prices and yields move opposite to one another./ppThe 10-year Treasury yield declined to 1.7244%. The yield curve — the difference between shorter and longer-term bond yields — grew the widest since April 2007. That inversion of the yield curve has predated every past recession./ppEscalating the trade war/ppThe yuan weakened sharply after the People’s Bank of China set its daily reference rate for the currency at 6.9225, the lowest rate since December. The central bank said in a statement that Monday’s weakness was mostly because of “trade protectionism and new tariffs on China.” President Donald Trump a href=”https://www.cnn.com/2019/08/01/economy/new-china-tariffs-threat-trump/index.html” target=”_blank”threatened a new round of tariffs/a on the country last week./ppDevaluing the yuan is one way China has of retaliating against the tariffs. A weaker currency helps Chinese manufacturers offset the costs of higher tariffs./ppAnalysts at Capital Economics said the move showed that Beijing has “all but abandoned” hopes for a trade deal with the United States./ppIn US economic data, the non-manufacturing index for July from the Institute of Supply Management undercut consensus expectations, which didn’t help matters./p