The global trading market was among the worst hit, with the recent escalation of trade war between two of the world’s biggest economies. Monday was marked as Wall Street’s worst trading day in 2019 with large number of investors fleeing as China devaluates yuan in response to US additional tariffs.
The sell-off of the stocks began last week when US President Donald Trump announced new tariffs on remaining Chinese imports worth $300 billion, to be executed from September 1. The announcement basically put all of the goods traded between the two economies, worth $660 billion, under punitive tariffs. With China’s currency depreciation, the already weaker markets went down further, entering the negative territory on Monday. The People’s Bank of China let the yuan drop below 7 against the US dollar, the lowest it has slipped in over a decade. The last it dropped beyond 7 was during 2008 crisis.
US treasury department severely criticised the move, officially labelling China a ‘currency manipulator’. Besides, Trump also took to Twitter to speak against the currency fiddling and called it a ‘major violation’. He wrote, “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!,”
China’s central bank released a statement on Monday stating that it can keep the yuan “reasonable and balanced”. It justified the move as a response to “trade protectionism and new tariffs on China” by Trump administration. The central bank has set a daily “band” for yuan’s value, in which it can move up or down only by 2%.
US stocks fell sharply and all three major Wall Street indices plummeted to their lowest levels since June. S&P 500 and Nasdaq witnessed their worst weekly losses of 2019 on Friday. Besides, Europe’s stocks also dipped by two percent, as a ripple effect to the huge slump in Asian trade market. In Asia, Hong Kong tumbled about three percent as its economy was also hit by ongoing pro-democracy protests.
An IG analyst David Madden, told reporters, “European equity markets have been rocked by the rising trade tensions between the US and China,”
“There is a feeling that China could inflict a lot more pain on the US in terms of the trade spat, and many traders are worried the economic conflict will rumble on for some time.”