Stocks and commodities plunge deep into red as tariff spat intensifies

And things were going so well. After four days of straight increases in US stock markets, mainly prompted by the looming earnings season which is expected to show a very respectable growth of about 20% this quarter for the S&P 500, stock markets in Asia, Europe, the US and most of the major commodities were plunged into red this morning, courtesy of the latest US trade tariff decision.

Attempt to negotiate trade solution yields no agreement

Fresh from starting to impose tariffs on $34 billion worth of Chinese goods since this Friday, and China responding in kind, the two countries attempted to negotiate a solution but failed. The attempt instead resulted in Washington proposing fresh tariffs on another $200 billion of Chinese imports and China saying it had no choice but to “fight fire with fire”.

The stock markets’ reaction was immediate: the FTSE and the DAX opened lower and then continued decline 1.19% and 1.25%, respectively. DJIA, Nasdaq and S&P futures also dropped, as did Chinese stock indexes.

In commodities the board was also almost uniformly red with declines in Brent Crude, gas, precious metals and wheat prices. Worse hit was copper, trading down 3.2% on the day. 

With China being the single biggest global buyer of base metals, frequently accounting for about half of global trade in the likes of copper, aluminium, nickel and zinc, investors were spooked by the intensifying trade tit-for-tat. 

Not only will this be negative for China’s demand for metals but will also affect FTSE heavyweights such as Rio Tinto, Glencore and BHP Billiton and a whole host of medium sized and smaller metals producers.

Hopes pinned on US earnings

Some counterbalance may be provided by US earnings which are expected to show strong growth across industries with the S&P 500 earnings delivering a 20% year-on-year increase, slightly less than the 24.8% in the previous quarter, and the second highest in eight years. The first to report are the four largest US banks this Friday.