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Dow closes down nearly 500 points as Wall Street gets tariff whiplash

Posted: 2:09 PM, May 07, 2019
Updated: 2019-05-07 20:16:44Z
Dow closes down nearly 500 points as Wall Street gets tariff whiplash

US stock market losses accelerated on Tuesday, as financial markets continue to grapple with the risk of an all-out trade war between China and the United States.

The Dow Jones Industrial Average closed 473.39 points lower, a near two 2% loss.

European stocks fared poorly too. The FTSE 100, DAX and CAC 40 all closed 1.6% lower. The pan-European Stoxx 600 fell 1.4%.

Asian markets ended their day mixed, with the Shanghai Composite closing 0.7% higher, retracing some of its 5.6% drop on Monday, according to Refinitiv.

Why stocks are falling

Global stocks were ailing after President Donald Trump Sunday threatened further tariffs on Chinese imports that could come into effect on Friday, throwing global markets into disarray. His administration doubled down on that threat Monday evening.

"The initial optimism that Trump's truculence was bluster was tempered," said Michael Hewson, chief market analyst at CMC.

Investors previously expected Beijing and Washington to be close to sorting out a trade deal after months of negotiations. A lack of an agreement between the world's two largest economies could stymie global growth.

Technology and industrial companies have been hit the hardest by the selloff, because their businesses inherently rely on the global trade of materials and finished goods.

The United States has other trade-related issues on its plate: Trump has previously threatened tariffs on European car makers, which could prove difficult for the industry, and the USMCA agreement to replace NAFTA has not yet been ratified either.

In short, uncertainty is back.

A reversal of the recent trend

Over the past months, the "Goldilocks" investing environment of low inflation and high growth had calmed investors' nerves. But political risk came back with a vengeance after the US-China trade negotiations seem to be on thinner ice than previously thought possible this late in the talks.

Monday's selloff started with the Dow opening sharply lower, but stocks recovered most of their losses yesterday as trading went on. Investors took some comfort after Chinese Vice Premier Liu said he remains scheduled to travel to the US this week.

Many have weighed whether the presidential tweet was just a negotiation tactic. Analysts at Bank of America believe that both parties at the table remain motivated to agree a deal.

Speaking to reporters on Monday, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin said China reneged on previous agreements over the weekend, undermining progress towards a detailed trade agreement between the world's two largest economies.

Lighthizer, the top US trade negotiator, said the administration would increase penalties on $200 billion of Chinese goods to 25% from 10% on Friday. Trump renewed his threat to raise tariffs on Sunday.

The-CNN-Wire
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