Investing.com - Wall Street pointed to a sharp decline at the open on Monday after the trade conflict between the U.S. and China took a sharp turn for the worse.
After no agreement was reached in last week’s negotiations, President Donald Trump instructed U.S. Trade Representative Robert Lighthizer to prepare 25% tariffs on virtually all Chinese products imported to the U.S., including those which were not currently covered by existing levies.
Trump warned China on Sunday that Beijing should reach a deal now instead of hoping he won’t win his 2020 reelection campaign. “Would be wise for them to act now, but love collecting big tariffs,” the president tweeted.
China’s Foreign Ministry spokesman Geng Shuang promised that China would “never surrender” to external pressure, although he stopped short of providing immediate details on planned retaliatory tariffs.
Hu Xijin, editor-in-chief of China’s state-controlled Global Times, indicated that the reason for the lack of details was because Beijing was “drafting a plan that will have precise effects, making sure it hits the US while minimizing damage to itself."
Although Trump has said that China would pay for the tariffs, White House economic adviser Larry Kudlow admitted in an interview with CNBC on Sunday that “both sides will pay." However, he suggested that the hit to the Chinese economy would be big while the impact on the U.S. would be minor.
Kudlow said there is a "strong possibility" that Trump will meet Chinese President Xi Jinping at a G20 summit in Japan in late June. That, and the fact that China has invited U.S. officials to Beijing again this week, suggests that talks haven't broken down completely.
Even so, worries of a negative impact on a global level shook risk assets on Monday.
The blue-chip Dow futures tumbled 312 points, or 1.2% by 6:52 AM ET (10:52 GMT), the S&P 500 futures sank 37 points, or 1.3%, while the tech-heavy Nasdaq 100 futures slid 126 points, or 1.7%.
“The increase in U.S. tariffs, which is likely to remain in place for some time, will adversely affect consumer and business confidence in an already slowing global economy, pressure global growth, dampen trade flows and tighten financial conditions,” analysts from Moody’s Investor Service warned in their Credit Outlook. “Although the global economy has shown signs of emerging stabilization, the tariff increase will likely reverse that trend.”
With no major economic data or company reports scheduled for Monday, trade will be driven by any developments with regard to ongoing dispute.
Federal Reserve officials Richard Clarida, Eric Rosengren and Robert Kaplan are scheduled for appearances throughout the day.
Outside of equities, the U.S. dollar index, which measures the greenback against six rival currencies, slipped 0.1% to 97.06 by 6:54 AM ET (10:54 GMT), while the yield on the 10-year Treasury fell 3 basis points to 2.43%.
In commodities, gold futures lost, $3.45, or 0.3%, at $1,283.95 a troy ounce, while crude oil traded up 84 cents, or 1.4%, to $62.50 a barrel in response to news of attacks on Saudi oil tankers entering the Persian Gulf.