S&P 500 Drops as US-China Trade War Heats Up – US Market Wrap

Economic anxiety pervaded every corner of Wall Street as US-China trade tensions worsened, causing a drop in stocks, the dollar, and oil, as liquidations in US assets pointed to financial system instability.

A day after the biggest stock-buying wave in years, assets linked to the economic cycle are sinking again, with President Donald Trump’s calming message on trade talks offering little relief. Investors are rushing to predict how the effective suspension of Chinese trade will affect businesses and growth. The S&P 500 dropped 3.5%. The dollar plummeted to its lowest since October. A strong US sale of 30-year Treasuries failed to spark a rally, but it did signal a desire for bonds amid high volatility.

Despite Trump’s signals that he is close to a first tariff deal – without naming the country – market euphoria has given way to unease. Concerns grew that an escalation of the trade war between the world’s two largest economies would cause long-term damage to global growth after the White House announced that US tariffs on China had risen to 145%.

Just a day after financial markets cheered Trump’s decision to postpone some of his tariff plans, the selloff in riskier parts of the market suggests growing scepticism that trade talks will be completed in a timely manner, despite White House National Economic Council Director Kevin Hassett’s claim that the US is “well advanced” in its discussions with economic partners.

The first signs of a global trade slowdown are already emerging, as companies around the world pause orders while he escalates his trade war with China. If anything, Trump is exacerbating the uncertainty that has already started to weigh on business and consumer sentiment.

While data released Thursday showed that US inflation fell broadly in March, the data was calculated prior to widespread levies that could add to price pressures. That may change in the coming months as Trump’s higher taxes spread throughout the economy. Price reductions for services like hotel stays and airfares may be a warning sign that some consumers are cutting back on discretionary spending.

Meanwhile, a growing number of Federal Reserve officials have expressed concern that aggressive trade policies may lead to a longer-term increase in inflation. US central bankers have signalled that they are not in a hurry to reduce borrowing costs further, preferring to wait and see how changing government policies affect the economy before adjusting rates.