North American stock markets tumble as U.S.-China trade war escalates

North American stock markets tumble as U.S.-China trade war escalates

Wall Street sank on Monday after China defied Washington by announcing retaliatory tariffs, the latest salvo in the two countries' increasingly belligerent trade war, sending investors fleeing equities for less risky assets.

At 8:44 a.m. ET, Dow e-minis were down 495 points, or 1.91 per cent. S&P 500 e-minis were down 56 points, or 1.94 per cent and Nasdaq 100 e-minis were down 195.75 points, or 2.57 per cent.

The world's largest economies had seemed on track to resolve the ongoing trade dispute that has raised prices for consumers and pinched corporate profit margins.

The S&P/TSX composite index closed down 104.14 points or 0.64 per cent to 16,193.41 after hitting an intraday low of 16,111.26.

The front part of the U.S. interest rate yield curve, running from three-month U.S. Treasury bills through to 10-year notes, inverted for the second time in less than a week and is seen as a classic signal that a recession is coming.

The biggest losers on the day were the cannabis-heavy health-care sector, along with consumer discretionary, energy, technology and financial sectors.

In New York, the Dow Jones industrial average was down 617.38 points at 25,324.99, just short of the 660-point drop on January 3.

The broader S&P 500 index fell 2.5 per cent. What was an 18 percent gain in the benchmark index has shrunk to 15 percent and the index sits about 65 points below the record 2,945.83 it touched April 30.

Micron Technology Inc., Intel Corp. and Qualcomm Inc. fell between 2.9 per cent and 4.2 per cent.

Overseas markets also fell. In Asia, the Shanghai Composite index fell 1.2%.

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Meanwhile, the People's Daily, the flagship newspaper of China's Communist Party, said the USA should take full responsibility for trade-talk setbacks because it raised tariffs on China's products, state television reported.

Analysts have said investors should prepare for a more volatile stock market while the trade dispute deepens. Many are still confident that both sides will eventually reach a deal.

"A lot of the run up this year was not only because the Fed changed its course, but also due to the abating of trade war concerns, and now that they've invigorated, it causes the gain to come off", said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co.

The deteriorating trade negotiations follow what has been a mostly calm period of trading where solid economic data and corporate earnings helped push the market steadily higher.

China's finance ministry said on Monday it planned to impose tariffs ranging from 5% to 25% on 5,140 USA products on a target list worth about $60 billion from June 1, striking back after the United States raised duties last week.

Of the 11 major sectors of the S&P 500, only utilities.SPLRCU ended the session in the black. Housing starts and several factory reports will give a further sense of second-quarter economic momentum. Earlier in the year they had expected earnings to severely contract. The results so far show less than a 1% drop in profit.

Wall Street extended its slide into a second week as investors seek shelter from an escalating trade war between the USA and China.

"Investors are increasingly anxious an anticipated second-half profit rebound may now evaporate as President (Donald) Trump's threat to tariff the remaining $325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven United States economy", said Alec Young, managing director of global markets research at FTSE Russell.

Elsewhere in the market, generic drug developers are sinking after many of them were accused of artificially inflating and manipulating prices.

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