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The trade war is back – at least as far as investors are concerned.
Stocks fell on Tuesday, as President Trump threatened China with new tariffs just days after the two countries agreed to a ceasefire. escalating economic conflicts. Presenting himself as a "tariff man", Trump, in a series of tweets, deepened the vagueness around the trade deal, while members of his economic team discussed the prospects for a broad agreement.
There is a fear that a lasting trade war will undermine global growth at a time when some of the world's largest economies are already slowing down and the United States, a remarkable player, is also expected to slow down.
Global and domestic concerns undermine the prospects of manufacturers, technology companies, regional banks and airlines, thereby intensifying massive sales. The S & P 500 lost more than 3% on Tuesday after recovering the day before on the hope of an agreement with China.
"They really want to see a positive solution where this problem is solved, so that they do not have to worry. about this, "said Randy Watts, chief investment strategist at the William O & # 39; Neil & Company brokerage company.
Since the Trump administration began charging custom duties on Imports from China, the US economy has been largely isolated from the trade war .The economy is at the pace of its best year since 2005, unemployment has almost reached its lowest point in 50 years and corporate profits are rising.
But investors are now struggling in the prospect of a protracted conflict, as the president said, could be a more controversial negotiation than expected. between the two countries, including the administration's insistence that China end its practice of pressuring US companies to pass on valuable secrets
Trump and Chinese President Xi Jinping agreed on Saturday not to impose an additional tariff for 90 days, until both parties work to conclude a formal agreement. Optimistic about the deal, Trump repeatedly cited specific agreements with China, including an increase in purchases of US agricultural products.
The agreement was subject to almost immediate doubt. Beijing never confirmed these details, while the White House sent contradictory messages about the agreements reached by the leaders.
On Monday, the White House also announced that Robert Lighthizer, US Trade Representative and longtime skeptic in China, would lead the talks with Beijing. The choice of Mr. Lighthizer, who has the reputation of being a tough negotiator, is a sign of a difficult path.
On Tuesday, optimism was completely gone, as Trump again called China to his business practices. In a series of tweets on Tuesday morning, he pushed the Chinese to buy "immediately" US agricultural products, and asked if a "real deal" with Beijing was actually possible.
"When people or countries come to plunder the great wealth of our nation, I want them to pay for the privilege of doing so," he wrote.
Tuesday evening, after the fall of the stock market, he repeated: this theme in another tweet . "We are either going to have a TRUE deal with China or not at all," he wrote.
The mood of the market deteriorated throughout the day, with the companies most exposed to the costs of trade being the main victims. The shares of Boeing and Caterpillar – major exporters with large sales in China – fell sharply, by 4.9% for Boeing and 6.9% for Caterpillar.
The chip companies, which rely on large networks of factories and subcontractors in Asia, have also collapsed. The Philadelphia Semiconductor index has fallen by almost 5%. Advanced Micro Devices shares fell nearly 11%, making it the weakest stock in the S & P 500 index.
But trading was not the only problem on Tuesday. The Russell 2000 Small Business Index – which generally relies a lot less on foreign sales – dropped by 4.4%, while regional banks, automakers, airlines, and automakers Homes have all fallen.
The bond market also gave early signs. The short and long-term interest rate gap for US government bonds declined sharply on Tuesday, reaching its lowest level since the financial crisis. Many analysts believe that long-term rates may soon fall below short-term rates, a phenomenon known as the inversion of the yield curve.
"The inversion has always preceded the recession, so you can not just make fun of it" According to Vinay Pande, Head of Trading Strategies at the Chief Investment Office of UBS Global Wealth Management.
Few people say that a recession is imminent, given the strength of the US economy. But the United States was dead in a fragile global economy. Growth in China slowed and the economies of Japan and Germany contracted in the third quarter.
Ultimatel Such a downturn could also weigh on the United States, and some US companies are already starting to prepare for an uncertain economic future.
Car manufacturers, already upset by the rising price of steel because of the trade war is now facing record sales at home. Last week, General Motors announced the closure of five plants in North America and the removal of about 14,000 jobs to reduce costs.
On Tuesday, cheap retailer Dollar General said the next tariff phase of the US-China trade war "could have a bigger impact on our business and our customers' budget." 6.8 percent.
Homebuilder Toll Brothers, faced with sluggish sales in the face of rising mortgage rates, announced that new home orders had fallen for the first time since 2014, contributing to a decline in homebuilders' inventories. # 39; dwellings.
"Investors are worried about the economy," Watts said. "This is clearly what this shows."
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