Dow set for a big drop as trade war fears return
Here we go again.
The Dow was on track to open 200 points lower on Friday after President Trump threatened to escalate a confrontation with China over trade.
Trump said he was considering tariffs on $ 100 billion more in Chinese exports, which would triple what the United States is already planning.
Dow futures were down more than 400 points on Thursday night, after Trump made the announcement.
Related: Trump threatens China with new $ 100 billion tariff plan
The market is fragile as China and the United States exchange threats on tariffs.
Wary investors are holding out hope that the two sides will reach a deal before the trade barriers go into effect. White House officials, including top economic adviser Larry Kudlow, have sought to ease Wall Street’s fears of a trade war.
Related: Trade war? Not so fast. Why stocks are rallying again
“The optimistic case is that the higher stakes will encourage the United States and China to push harder for an agreement so that the tariffs can be avoided or at least watered down,” Capital Economics’ Julian Evans-Pritchard wrote in a research note Friday.
Earlier this week, the Trump administration announced plans for tariffs on $ 50 billion worth of Chinese goods in retaliation for China’s alleged theft of US intellectual property. Beijing fired back hours later by threatening tariffs on $ 50 billion worth of US goods, including cars, planes and soybeans.
Related: How much ammo does China have for a trade war?
The moves follow US tariffs that were imposed earlier this year on Chinese steel and aluminum. That prompted China to target US fruits, nuts, wine and steel pipes in response.
“The ratcheting up of trade tensions clearly carries risks. The tariff threats, even if only intended as bargaining tools, will be difficult to back down from if talks fail to deliver results,” Evans-Pritchard said.
Stock futures were mostly unaffected by the March jobs report, which showed that the US economy added 103,000 positions, down from a much bigger gain in February and well below what analysts were expecting.
Wages grew 2.7% in March compared with a year earlier, in line with expectations. Investors were watching that number because it’s a barometer of inflation. The Federal Reserve is on track to raise interest rates three times this year, but the Fed could speed up its plan if inflation creeps higher.
The combination of the hiring slowdown and modest wage growth eased Wall Street’s concerns that the economy was overheating.
“Investors breathed a sigh of relief,” said Sam Stovall, chief investment strategist at CFRA Research. “Now we only have one issue to deal with, and that’s trade.”
