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US-China Trade Tensions Intensify

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American investors woke up to pre-market futures down significantly, including -400+ point on the Dow 30 index. The reason directly stems from a series of tweets Sunday by President Trump, who announced a 25% hike in tariffs on $200 billion in Chinese goods coming to the U.S. by Friday. Apparently, the months-long trade deal between the U.S. and China is moving “too slowly” for the president.

This resulted in a big downturn in Chinese indexes early Monday, with Hong Kong’s Hang Seng down 871 points, or -2.9%, the Shanghai composite -5.58% and the Shenzhen -7.38%. Chinese officials have yet to make a public response to Trump’s announcement on Twitter (TWTR - Free Report) , leaving open the possibility that China — whose economy has finally begun to improve — may walk away from the trade deal, or bring about some measure of relaliation.

After 2+ years of a Trump presidency, however, it would not be the first time we saw the president express frustration in a tweet, only to walk his position back once cooler heads have prevailed. Yet we’ve also seen this president double-down on policies often deemed controversial, regardless of potential outcome to the downside. Until we see some further statements on the matter, traders are taking Trump’s threat at its word.

Even the oil market is seeing a pullback based on this news: the Brent crude index currently is below $70 per barrel, a low price it has not seen for over a month; the West Texas Intermediate (WTI) has fallen 2% to sub-$61 levels at this hour. For the global oil suppliers, a meeting is currently scheduled for members of OPEC in June, where the allegiance will decide on supply policy going forward. The Trump administration has already promised harsh treatment of countries that continue to import oil from the country of Iran.

There is simply not enough information yet to know the way forward. But considering that the Dow has gained 21.6% since its Christmas Eve 2018 lows (+4,713 points!), partially on expectations of a finalized trade deal between the U.S. and China, it does make sense that a near-term roiling in stocks should take place to take back some of that good faith bet.


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