(Bloomberg) -- U.S. equities climbed from the lows of the day posted after President Donald Trump’s threat to increase tariffs on Chinese imports called into question the chances of a resolution to the trade war.
The S&P 500 index tumbled by the most since March before cutting the loss in half, signaling a potentially volatile week on Wall Street after Trump tweeted a plan to hike tariffs this coming Friday. From JD.com and Skyworks (NASDAQ:SWKS) to Apple (NASDAQ:AAPL) and Caterpillar (NYSE:CAT), tech companies with China exposure and machinery companies -- which are seen as proxies for the trade war -- were among the biggest decliners in early trading. The VIX gauge of stock volatility headed for its biggest increase this year.
“All the indications we had were that things were going well, and we had this news that took people by, ‘Woah, hold on, last we saw things were going okay,”’ said Joe “JJ” Kinahan, the chief market strategist at TD Ameritrade. “We get this news, overnight the markets get a little scared. With the markets opening today, I wouldn’t say cooler heads prevail, but you have more places to trade so that’s why you saw the market come back a little bit. We’ll see if this can last.”
Commodities were roiled. Cotton and corn futures slumped, while soybean contracts headed toward their largest drop in about nine months. West Texas Intermediate oil futures declined as much as 3.1 percent before erasing most of the drop as Saudi Arabia cut June pricing for all crude grades to the U.S., a move that appeared to be aimed at easing concern over supplies.
As some investors sought safer assets the yield on benchmark Treasuries fell the most in almost two weeks. European government bonds and the euro held steady as economic activity in the euro area showed signs of stabilization. Equities in the region slid, tracking a sell-off across much of Asia. Shanghai’s benchmark index tumbled 5.6 percent, even after Chinese state-backed funds were said to have been active in an effort to limit the damage.
Seeking to ramp up pressure on China for more concessions, Trump threatened in two tweets to more than double tariffs on $200 billion of Chinese goods and impose a fresh round of duties on top of that. Talks to resolve the year-long trade standoff appeared to be on life-support Monday, with Beijing struggling to fully respond. China’s foreign ministry said that officials were still planning to travel to the U.S. for the next round of negotiations, but it was unable to confirm when amid signs that a delay is now being considered.
“Escalation like this means we are certainly further away from the end of this negotiation process than we thought,” said Arthur Hogan, chief market strategist at National Securities Corp. “The three things that have been driving this market higher this year have been the pivot by the Fed, better than feared earnings, and the belief that we would get a trade deal done sooner rather than later.”
Adding to a complex global picture, North Korea carried out a weapons test that potentially included its first ballistic missile launch since 2017, challenging Trump’s bottom line in nuclear talks.
Elsewhere, Turkey’s lira weakened past six per U.S. dollar, touching its lowest level in almost seven months as a possible repeat of the March Istanbul mayor’s election hung over the market and added more pressure to emerging-market currencies.
Here are some notable events coming up:
- Chinese Vice Premier Liu He is scheduled to return to Washington for trade talks on Wednesday, though the schedule may now be in flux.
- The Reserve Bank of Australia meets to set interest rates Tuesday, while New Zealand central bank does the same the following day.
- China releases trade data Wednesday, and the U.S. does so on Thursday.
- South Africa holds national elections Wednesday.
- China reports on inflation Thursday. The U.S. releases the April CPI report Friday.
These are the main moves in markets:
Stocks
- The S&P 500 Index fell 0.8 percent as of 11:22 a.m. New York time, while the Nasdaq Composite Index dropped 0.9 percent and the Dow Jones Industrial Average slumped 0.7 percent.
- The Stoxx Europe 600 fell 1.1 percent.
- The MSCI Emerging Market Index dropped 2 percent.
- The MSCI Asia Pacific Index slumped 1.2 percent.
Currencies
- The Bloomberg Dollar Spot Index gained 0.3 percent.
- The euro was little changed at $1.1191 while the yen strengthened 0.2 percent to 110.87 per dollar.
- The British pound weakened 0.6 percent to $1.3097.
- The MSCI Emerging Markets Currency Index eased 0.3 percent.
Bonds
- The yield on 10-year Treasuries fell three basis points to 2.49 percent.
- Germany’s 10-year yield fell two basis points to 0.01 percent.
Commodities
- West Texas Intermediate fell 0.5 percent to $61.61 a barrel.
- Gold was little changed at $1,279 an ounce.
- The Bloomberg Commodity Index fell 0.7 percent.
