Five Things You Need to Know to Start Your Day

(Bloomberg) -- Want to receive this post in your inbox every morning? Sign up here.

All-out trade war edges closer, markets are put on notice and government shutdown is averted. Here are some of the things people in markets are talking about today.

China retaliates

Hours after President Donald Trump ordered tariffs on $50 billion of Chinese imports as recompense for alleged intellectual property abuses, China unveiled levies on $3 billion of U.S. imports of pork, recycled aluminum, steel pipes, fruit and wine. The White House also declared a temporary exemption for the European Union and other nations on those levies, making the focus on China clear. Such a hard-nosed approach may have widespread and lasting consequences, commentators warned. With sizeable holdings of U.S. Treasuries and its growing export market, China has considerable leverage over the U.S. Though Beijing’s actions so far are seen by analysts as measured, there may be more to come.

War rations

Stocks were on the frontline of a potential trade war and equity indexes across the globe tumbled. The Stoxx Europe 600 Index fell for a third day after equity indexes from Tokyo to Shanghai tumbled well over 3 percent. In bond markets, peripheral Europe sold off sharply, though Treasuries held with 10-year yields clinging to the 2.8 percent support. Trump’s decision to replace White House National Security Adviser H.R. McMaster with John Bolton could wreak havoc with markets given Bolton’s hard-line stance against Iran.

Senate reprieve

Senators kept the government open, passing a $1.3 trillion spending bill early Friday that increases military and domestic spending and strengthens background checks for gun buyers. The 65-32 vote came after Republican conservatives objected to the higher spending and raised the possibility the vote would languish past midnight and trigger a shutdown. White House budget director Mick Mulvaney told reporters that President Trump would sign the measure, saying it funds his priorities. Not everyone was happy with the outcome, however. “It sucks,” said Senator John Kennedy, a Louisiana Republican who opposed the bill and entertained forcing a government shutdown by delaying a vote. “No thought whatsoever to adding over a trillion dollars in debt.”

Markets hit

Japan’s Topix index sank 3.6 percent, while U.S. futures slipped 0.6 percent as of 5:55 a.m. Eastern Time after the S&P 500 Index closed down 2.5 percent, the most in six weeks. In Europe, the Stoxx 600 Index was down 1.6 percent as of 5:57 a.m., with every industry group in the red. Developed-market government bonds rallied with the 10-year Treasury yield edging lower to 2.81 percent. Oil futures added 0.4 percent and gold gained 1 percent.

Das boot

Russian spies in Europe may soon get the boot after some countries said they’re considering expulsions and EU leaders sided with Britain in pointing the finger at the Kremlin for the nerve agent poisoning in Britain of a former double agent. Germany’s Angela Merkel said “we are united in our language, but if necessary also to react together with further action.”

What we've been reading

This is what's caught our eye.

  • Male anger is a problem for a rich country run by women.
  • The world according to John Bolton.
  • Secret plot to reverse Brexit.
  • Keeping up with White House’s revolving door.
  • Here are all the Chinese things that arrived on U.S. shores in 2017.
  • Crypto’s friendly island in the sun.
  • Inflation is getting the better of star central banker.

To contact the author of this story: Cecile Gutscher in London at cgutscher@bloomberg.net.

©2018 Bloomberg L.P.