Stocks Finish at Lows as Trade Tensions Escalate: Markets Wrap

(Bloomberg) -- U.S. equities tumbled on concern tensions with China are escalating just days before high-level talks between officials from the world’s biggest economies.

Chipmakers led the S&P 500 Index to a 1.6% loss and Chinese companies that trade in New York sank to the lowest since mid-August as the Trump administration put visa bans on Chinese officials linked to the mass detention of Muslims in Xinjiang province. That came after China said it strongly opposed a U.S. move to blacklist some of its technology firms and Bloomberg reported the White House is moving ahead with discussions about restricting capital flows to China.

The flare-up overshadowed comments by Federal Reserve Chairman Jerome Powell that the central bank will seek to calm money markets while leaving his options open on interest rates weeks ahead of policy makers’ next meeting. Ten-year Treasury yields fell below 1.55% and the dollar rose.

The escalation in tension between the U.S. and China comes just days before senior representatives will resume their effort to resolve a protectionist dispute that has roiled markets for more than a year. People’s Bank of China Governor Yi Gang will join Chinese Vice Premier Liu He at the talks in Washington and a report from China’s Global Times said that the full delegation is “one of the largest and broadest teams.”

“China is still the overhang that’s going to be the most important,” JJ Kinahan, the chief market strategist at TD Ameritrade, said in an interview at Bloomberg’s New York headquarters. “Even though we have the talks this week, it seems hard to believe they’re going to come out on Friday afternoon and be like, ‘Alright, we’ve done it! It’s over!’”

The Stoxx Europe 600 Index declined after two days of gains. The pound weakened after Boris Johnson told German Chancellor Angela Merkel a Brexit deal is essentially impossible if the EU demands Northern Ireland stay in the bloc’s customs union.

Asian equity benchmarks had jumped from Tokyo and Seoul to Shanghai and Hong Kong, where trading showed little concern about ongoing unrest. The tech-heavy South Korean index led the regional advance after Samsung Electronics Co. earnings beat analyst estimates.

Elsewhere, the dollar rose, shrugging off data that showed a measure of underlying U.S. producer prices posted the biggest monthly drop in more than four years. Turkey’s lira stabilized after tumbling Monday in wake of U.S. President Donald Trump’s threat to “destroy” the country’s economy if it acts in excess in a military operation targeting Kurdish forces in Syria. West Texas crude fell toward $52 a barrel.

Here are some key events coming up this week:

• On Wednesday, minutes will be released from the last policy meeting of the Fed’s rate-setting committee.
• The account of the ECB’s last gathering is due Thursday.
• Chinese President Xi Jinping and Indian Prime Minister Narendra Modi reportedly will meet at an unofficial summit.
• The U.S. releases a key measure of inflation on Thursday.

Here are the main moves in markets:

Stocks

• The S&P 500 Index fell 1.6% at the close of trading in New York.
• The Stoxx Europe 600 Index sank 1.1%.
• The MSCI Asia Pacific Index increased 0.4%.
• The MSCI Emerging Market Index fell 0.2%.

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%.
• The euro fell 0.2% to $1.0953.
• The British pound declined 0.6% to $1.2221.
• The Japanese yen strengthened 0.1% to 107.11 per dollar.

Bonds

• The yield on 10-year Treasuries decreased three basis points to 1.53%.
• Germany’s 10-year yield dipped two basis points to -0.6%.
• Britain’s 10-year yield declined three basis points to 0.41%.

Commodities

• Gold increased 0.9% to $1,506.14 an ounce.
• West Texas Intermediate crude fell 0.8% to $52.32 a barrel.

--With assistance from Sybilla Gross, Andreea Papuc, Vassilis Karamanis, Samuel Potter and Todd White.

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh

©2019 Bloomberg L.P.