Markets

Tough talk from Trump administration hits stocks

US plans to raise tariffs on China drags on markets

US president Donald Trump Photograph: Yuri Gripas/Pool via Bloomberg

Tue May 7 2019 - 08:57

Traders who thought they sidestepped the latest round of trade belligerence were dragged back to their seats late Monday as more tough talk from the Trump administration sent stock indexes lower.

An exchange-traded fund tracking the S&P 500 slipped as much as 0.8 per cent from its 4 pm close after the president's top trade negotiator, Robert Lighthizer, said the US plans to raise tariffs on Chinese goods on Friday, accusing Beijing of backpedaling on commitments it made during negotiations.

"If they are in fact raised, it would weigh heavily on markets," said Peter Jankovskis, co-chief investment officer at Oakbrook Investments, adding that the talk still sounds to him like a negotiating tactic. "What they're saying is they're going to make an announcement of tariffs on that date. But I don't believe they can actually go through and implement it."

The lurch in the ETF, which was pared to about 0.5 per cent at 5.30pm in New York, followed a roller-coaster session in which a decline that reached 1.6 per cent in the S&P 500 cash index narrowed to 0.5 per cent by the close. Investors have been trying to gauge the seriousness of the tariff threat and weighing it against a relatively robust US economy and profit forecasts.

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“The market took the relatively optimistic view today that the president’s tweets were a negotiation tactic and maybe he wasn’t absolutely serious,” said Michael O’Rourke, JonesTrading’s chief market strategist. “Now you have the confirmation that he’s serious and that trade talks are deteriorating fast. We’re up 17 percent this year largely because of the expectation of a trade deal, I expect the markets to have a hard time with this negative development, unless the news flow shifts back to positive.”

The US and China had been making substantial progress on a trade deal, but in the past week China has reneged on some of its promises, Mr Lighthizer said. Significant issues remain unresolved, including whether tariffs will remain in place, he said.

"I still think the market is looking for some type of resolution and hoping and praying that that will happen," said Nathan Thooft, Manulife Asset Management's head of global asset allocation. "There's no doubt if they go into effect, if they stay in effect, the markets aren't going to like that." – Bloomberg

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