Stocks Continue to Fall as Uncertainty Over Trade Talks Persists

By Avantika Chilkoti

Global stocks continued to tumble on Wednesday as a familiar worry threatens to end the unwavering rally that has defined 2019: rising tensions in U.S.-China trade talks.

In Europe, the Stoxx Europe 600 was down 0.2% in morning trading. In Asia, the Shanghai Stock Exchange dropped 1.1%, Hong Kong's Hang Seng Index was also down 1.1% and Korea's Kospi dropped 0.4%.

Futures pointed to a tepid opening for U.S. indexes with the Dow Jones Industrial Average and S&P 500 futures roughly flat.

It was sparring between the world's two largest economies that dragged markets lower late last year. And a prolonged period of calm in global markets ended abruptly this week, as trade negotiations threatened to stall once again.

U.S. officials accused Beijing of reneging on its side of the bargain and threatened to raise tariffs on $200 billion of Chinese imports to 25% from Friday. Despite rising tensions, Beijing has announced that top trade envoys will head to Washington Thursday to resume negotiations ahead of that deadline.

It is unsurprising that the U.S. has increased pressure on China in recent weeks, said Ed Smith, head of asset allocation research at Rathbone Brothers Plc., the investment manager, given expectations that talks will formally wrap up around the meeting of G-20 leaders in Osaka in June--and President Donald Trump's usual negotiating tactics.

"He loves a bit of brinkmanship and he particularly likes some particularly vocal and belligerent brinkmanship," said Mr. Smith, who is currently recommending defensive investments like the FTSE100 and S&P 500 indexes, as well as sectors like beverages, aerospace and defense.

After one of the largest drops ever at the beginning of the year, the Cboe Volatility Index or VIX, a yardstick for expected swings in equities, has picked up this week.

The 10-year U.S. Treasury ticked up to 2.462% from 2.448% on Tuesday. Yields move inversely to prices. German 10-year government bonds were still in negative territory at -0.037% as investors mull the possibility that President Trump could soon ramp up trade barriers for Europe too.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was down slightly.

Investors will be watching closely when the Commerce Department publishes the latest trade data on Thursday. Economists surveyed by The Wall Street Journal forecast a widening in the deficit in March. And the Labor Department will publish inflation figures Friday, with economists expecting price growth to tick up on a year-on-year basis.

Elsewhere in commodities, global benchmark Brent crude oil was up 0.7% on Wednesday morning at $70.35.

Analysts at Commerzbank, point out that fresh tariffs could weigh on demand, given the U.S. and China together make up around one-third of global oil demand. But supply has also tightened and U.S. sanctions are set to further quell oil shipments from Iran and Venezuela, in particular.

This week, the U.S. announced it would step up its military presence in the Middle East as part of a continuing move to increase pressure on Iran.

Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com

(END) Dow Jones Newswires

May 08, 2019 04:03 ET (08:03 GMT)

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