Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S.(Photographer: Michael Nagle/Bloomberg)

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The lull in the U.S.-China trade war didn’t last long, and the conflict’s escalation meant turmoil for traders and investors Wednesday. Here are some of the things people in markets are talking about.

Stocks Slump, Commodities Plunge, Dollar Rallies

Stocks fell, crude plunged the most in two years and the dollar gained as markets reeled from fresh salvos in the escalating trade war between the U.S. and China. The S&P 500 Index ended the longest rally in a month after the Trump administration said it will slap tariffs on an additional $200 billion of Chinese products. The Asian nation vowed to retaliate. Metals and oil bore the brunt of the reaction in commodities: Copper, nickel and zinc all tumbled amid fear that increasing protectionism will hurt global raw-material demand. Trade-sensitive shares in the U.S. led declines, with Caterpillar Inc. and Boeing Co. slumping along with Freeport-McMoRan Inc. and Deere & Co. Emerging-market equities fell more than 1 percent to halt a three-day climb. The offshore yuan sank the most since August 2015 on a closing basis.

Trade Talks Going Nowhere Fast

High-level trade talks between the U.S. and China have ground to a halt as the Trump administration threatens to escalate a trade war that shows little sign of abating, according to five people familiar with the matter. The countries held three rounds of formal negotiations since May, led by U.S. Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross and Vice Premier Liu He in China. But communications between senior members of the Trump and Xi administrations have petered out, and there’s no immediate plan to restart the formal talks, said the people, who spoke on condition of anonymity because the deliberations aren’t public. The diplomatic impasse makes it unlikely the two countries will stand down anytime soon from an intensifying trade war that’s threatening the broadest global upswing in years.

Tariffs Blunt FX Volatility

Foreign-exchange traders are struggling to know which way to lean when it comes to betting on the escalating global trade war. Even amid the heated rhetoric, swings in major developed-market currencies have remained muted, and opinion is divided about what might constitute a haven if tensions escalate. Measures of realized volatility are close to the lows for the year. The situation has upended some assumptions about how certain currencies move in times of risk aversion, leaving strategists flummoxed. Standard Bank said Wednesday it’s disinclined to make new forecasts given the murky outlook, while Societe Generale SA said it’s struggling to figure out why the yen isn’t acting as a haven. Commerzbank AG said it was stumped about where the dollar is headed from here.

Trump, Merkel Face Off at NATO

Angela Merkel responded to Donald Trump’s pre-NATO tirade, as the two face-off at the opening of the organization’s two-day summit. On her arrival, Merkel said Germany was doing its bit for NATO and went on to stress Germany’s right to make decisions in its own interests. “I would like to add on this particular occasion that I myself have experienced Soviet control over part of Germany,” Merkel said. “I’m very happy that we in the Federal Republic of Germany live united in freedom, and for that reason we can make sovereign decisions.” Her comments came after Trump blasted Germany’s Nord Stream 2 pipeline deal with Russia. Few expected smooth sailing at the Brussels summit. But the vehemence of Trump’s on-camera breakfast attack on Germany for its backing of the gas project, and for being “captive” to Russia, came as a shock. 

Coming Up...

The Bank of Korea’s meeting concludes Thursday, with economists expecting officials to hold their key rate at 1.5% as policy makers weigh signs of renewed softness in the economy and the potential fallout from escalating trade friction between the U.S. and China. A stalling of export growth and the prospect of growing trade protectionism combined with heightened concern over unemployment have dampened earlier market expectations for a possible policy tightening as soon as this month. India releases CPI and industrial production, and U.S. will release inflation figures Thursday morning local time.

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