Stocks falter, haunted by concerns over tariff impact
Investors pulled back on Monday as weaker-than-expected Asian economic surveys ratcheted up worries over the potential impact of higher tariffs due to be imposed by China and the U.S. in a festering trade dispute.
The Dow Jones industrial average fell 180 points, or 0.75 percent, to 24,090.48, in early trading, while the S&P 500 slipped by 0.5 percent. The tech-heavy Nasdaq also declined.
The U.S. is set to impose a 25 percent tariff on up to $50 billion of Chinese products starting this Friday. In response, China will raise import duties on $34 billion worth of American goods. On Sunday, Canada started billions of dollars in retaliatory tariffs against the U.S., in a tit-for-tat response to the Trump administration's duties on Canadian steel and aluminum.
"There is caution over the imposition of tariffs this weekend. Taken together, weaker-than-expected data gives markets room for thought on whether Trump protectionism has seeped into the real economy," said Song Seng Wun, an economist at CIMB Private Banking.
The items include ketchup, lawn mowers and motor boats. Some items will be subject to taxes of 10 or 25 percent. The U.S. has also faced hit back from the European Union. Iconic American motorcycle maker Harley-Davidson will move some production overseas to avoid tariffs the European Union is placing on motorcycles made in the U.S.
The recent tariffs would extend to more than 4 percent of world imports, representing a 10-fold jump, according to a Monday research note from Oxford Economics.
"This comes just as the global upturn shows signs of faltering," Adam Slater, lead economist at Oxford, wrote in the report. "The threat to world growth is significant: in a scenario of escalating tariffs, our modelling suggests world GDP could be cut by up to 0.4 percentage points in 2019."
European shares fell in early trading. Germany's DAX dropped 0.5 percent to 12,242.80 and France's CAC 40 lost 1.0 percent to 5,270.37. Britain's FTSE 100 shed 0.8 percent to 7,573.61.
ASIAN STOCKS
Asian markets were overshadowed by weaker than expected Chinese manufacturing data and a softening in Japan's economic outlook. Japan's benchmark Nikkei 225 index plunged 2.2 percent to 21,811.93 and South Korea's Kospi shed 2.4 percent to 2,271.54. The Shanghai Composite index tumbled 2.5 percent to 2,775.56 while Australia's S&P/ASX 200 lost 0.3 percent to 6,177.80. Hong Kong's markets were closed for a market holiday. Taiwan's benchmark fell but Southeast Asian indexes were mixed.
China's manufacturing activity slowed in June, adding to concerns that the economy is cooling due to tighter government controls on lending. The National Statistics Bureau's purchasing managers' index, which was released on Saturday, declined to 51.5 from May's 51.9 on a 100-point scale. Numbers above 50 show acceleration.
Exports, which support millions of manufacturing jobs, have shrunk as a share of China's economy and contribute less than 1 percent of annual growth. On Monday, China's Caixin Manufacturing PMI for June came in at 51.0, slightly lower than 51.1 in May.
In Japan, a central bank survey showed the country's corporate outlook has worsened from three months ago, highlighting risks to its export-reliant economy from trade tensions. The Bank of Japan's "tankan" survey measuring confidence among large-scale manufacturers was at 21 points, down 3 from the March survey, which was the first decline in two years. The manufacturers surveyed include automakers and electronics companies that are the mainstay of Japan's economy.
ENERGY AND CURRENCIES
Mr. Trump has claimed that Saudi Arabia will raise oil production by "maybe up to 2,000,000 barrels" in response to turmoil in Iran and Venezuela. This is higher than the 1 million barrels-a-day increase that OPEC countries have agreed on, sending oil futures on a decline.
Benchmark U.S. crude fell 36 cents to $73.79 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained 1 percent to $74.15 a barrel in New York on Friday. Brent crude, used to price international oils, fell 73 cents to $78.50 in London.
The dollar ticked up to 110.81 yen from 110.74 yen in late trading Friday. The euro weakened to $1.1642 from $1.1695.