Futures are plunging this morning after President Donald Trump shocked investors by threatening to hike tariffs on $200 billion worth of Chinese goods
After weeks of warnings from many on Wall Street that price swings across global markets were too subdued, the American president’s threat to boost tariffs on China sent volatility soaring Monday. The VIX Index jumped 43 per cent, the most since October — the start of a horrible quarter for U.S. equities. S&P 500 Index futures slid 1.7 per cent and the Shanghai Composite fell 5.6 per cent, the most since February 2016. European shares also dropped.
— Donald J. Trump May 5, 2019Whether they were a negotiating tactic or a sign of something more ominous, Trump’s tweets jolted markets that had been lulled in recent weeks by signs of progress in trade talks, a dovish turn by the Federal Reserve and better-than-expected corporate earnings. Investors who had grown accustomed to cross-asset volatility at or near historically low levels were once again forced to consider that all might not be smooth sailing.
“It might not be as bad as it looks” but it’s “very likely to undo all of the positive momentum we’ve seen,” said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty in Sydney. The question is whether this is “a last-minute negotiation tactic” or will mark a breakdown in the talks, he said.
“If current news flow is simply posturing and relations get smoothed over and a U.S.-China deal is ultimately reached CNH could temporarily trade back to 6.75,” according to Jason Daw, head of emerging-market strategy at Societe Generale SA in Singapore. “If it all falls apart and tariffs are raised this week and the two sides stop active dialogue, CNH could easily head to 6.90 in the second quarter.”Nomura Holdings Inc.
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