On Friday, August 2, global investors massively sell securities in stock markets. Trading on the stock exchanges in Asia closed a sharp decline in quotations. Thus, the index of the Shanghai Stock Exchange SSE Composite fell by 1.41%, to 2867 points, and the Hong Kong Hang Seng - by 2.51%, to 26,872 points. The last time similar levels could be observed in the middle of June. The Japanese Nikkei, in turn, also declined by 2.11% to its lowest level in two weeks - 21,540 points.
The opening of the trading session in Europe is accompanied by the collapse of the main stock indicators in a month and a half. The German DAX index dropped by 2.18% (to 11,983 points), the French CAC 40 - by 2.3% (to 5430 points), and the English FTSE 100 - 1.61% (to 7463 points).
The dynamics of European and Asian quotes deteriorated following the fall of the US stock market. On the eve of the key US stock indices reached the lowest values since the end of June. The Dow Jones Industrial Average fell by 1.05% (to 26,583 points), the corporate S & P 500 fell by 0.9% (to 2,953 points), and the high-tech NASDAQ went down by 0.79% (to 8,111 points).
Panic among financial players provoked the statements of Donald Trump about the escalation of the US-Chinese trade war. As the American president stated, as of September 1, the States will introduce new 10% duties on imports of Chinese goods in the amount of $ 300 billion.
“Our representatives have just returned from China, where they had constructive negotiations on a future trade agreement. We thought we had agreed on a deal with China three months ago, but, unfortunately, China decided to revise the terms of the contract before signing it, ”Trump said on his Twitter account.
According to the head of the White House, Beijing has not fulfilled its promise to start purchasing agricultural products from the United States and stop selling the drug fentanyl, from which an overdose "continues to die a large number of Americans." Moreover, according to TASS, Donald Trump also did not rule out that later, depending on the further course of negotiations with the PRC, the size of the promised tariffs may increase from 10% to 25%.
The reaction of the Asian Republic to the words of the President of the States followed immediately. For example, the PRC threatened Washington with the “disastrous consequences of its actions” and retaliatory measures. This was announced on August 2 during a briefing by the official representative of the Ministry of Foreign Affairs of the People's Republic of China, Hua Chunying.
- Reuters
- © Kevin Lamarque
Recall that the trade confrontation between the two largest economies in the world began in 2018. Washington accused Beijing of illegally obtaining American technology and intellectual property. According to the White House administration, the actions of China led to the fact that the US trade deficit with the Asian republic reached $ 375 billion.
In May 2018, the countries agreed on a peaceful settlement of the conflict, but the American side decided to launch a full-scale trade war and imposed duties on half of Chinese exports ($ 250 billion). In response, Beijing set tariffs at a rate of 5% and 10% on imports of American products for $ 60 billion, after which Washington promised to introduce duties on all deliveries from China.
Although at the beginning of 2019, the states held a series of successful negotiations, in May, the States increased duties on Chinese goods to the amount of $ 200 billion and threatened to impose additional tariffs on products for $ 300 billion. China in response introduced its duties in the amount of $ 60 billion from June 1. Meanwhile, US technology companies began to stop working with the Chinese giant Huawei. At the G20 summit in June, the parties again agreed to resume negotiations, but the White House once again decided to step up pressure on the Asian republic.
“The result of an overly prolonged conflict may be a more serious slowdown in international production and trade, which is estimated by many analysts and financiers as the first factor in the possible start of an economic crisis in the world,” German Shekhovtsev, partner of strategy and operational efficiency, explained in an interview with RT
Note that the tariff opposition of the two countries has already provoked a record decline in business activity in the global manufacturing sector. In July, the corresponding PMI index dropped to 49.3 points - for the first time since October 2012. This is stated in a joint report of JPMorgan and the analytical agency IHS Markit.
Traditionally, the PMI index reflects the real state of a particular industry. A value above 50 points indicates a positive economic situation, below 50 points indicates a stagnation of the sector.
According to the estimates of the head of the investment department “BCS Broker” Narek Avakian, in the coming days, the market will continue to play messages about a new round of trade war. According to the specialist's forecast, American indices may decrease further by 5–6%, Asian - by 8–10%, and European - by 3-4%.
Internal pressure
It is curious, as analysts surveyed by RT say, that Trump's statements about the escalation of trade war followed the outcome of the US Federal Reserve meeting. On July 31, the Federal Reserve for the first time since 2008 expectedly reduced the interest rate, but at the same time, the head of the regulator, Jerome Powell, did not announce the beginning of a long-term stimulus to the US economy. This decision caused a negative reaction from investors and turned into criticism from the American president.
“The market wanted to hear from Powell and the Fed about the beginning of a long and decisive cycle of rate cuts to keep pace with China, the European Union and other countries of the world. As usual, Powell disappointed us, ”Trump wrote on his Twitter.
Note that in 2018, the US Federal Reserve raised the base rate four times and planned to raise two more in 2019 in December. However, Trump has repeatedly criticized the actions of the regulator and his manager. According to the head of the White House, the economic situation of the country did not require such a tightening of monetary policy.
As a result of trump's accusations and concerns about the economic downturn in the United States, the regulator changed the rhetoric. The rate was retained in the spring, and in early July, Jerome Powell openly hinted market participants to a possible easing of monetary policy. Thus, the markets were counting on a long decline in interest rates, but following the last meeting, they did not receive confirmation of their forecasts from the Fed.
According to RT experts polled, by increasing the risks of a trade war, Donald Trump is trying to put pressure on the Fed leadership and thereby speed up the process of lowering rates.
“The fact that Trump’s statements on duties were announced the next day after Powell’s words can be considered an indicator that the American political and economic establishment currently has no common understanding of the situation,” said German Shekhovtsev.
As Vladimir Rozhankovsky, an expert at the International Financial Center, told in an interview with RT, Trump’s attempts to influence the Fed’s actions are already causing discontent among the country's political elites. According to the analyst, in the event of further growth of tension between the head of the White House and the head of the Fed, the US Congress may initiate a bill restricting the powers of the president regarding the financial and fiscal policy of the state.