Stocks gapped down at the open after China escalated the trade war with fresh tariffs on US goods. The Dow is currently down 624 pts and the SPX is down 2.5%. The US stock market is now down about 5% from its recent all-time high. The worst performing sectors today are tech, industrials and consumer discretionary—those considered hardest hit by trade tariffs. The only sector with gains today is utilities. The VIX Index jumped up to 20.6 but VIX June futures are trading at 18.6. Commodities are mostly lower. Bloomberg’s Commodity Index (BCOM) is down .6% today, but still up slightly on the year. WTI crude oil fell back to $61/barrel. Bonds are not surprisingly rising in value. The 10-year Treasury yield fell back to 2.39% and the next real support level is March’s low of 2.37%.
The US-China trade war continues to escalate. In a tit-for-tat move, the Chinese government announced higher trade tariffs targeting US goods that will take effect on June 1st. Roughly $60bil in US exports to China will not be assessed a 25% tariff. This will mostly affect agricultural products. Interestingly, tariffs will remain at 5% for key product categories like medical equipment, farm equipment, and motor vehicle parts. And the new tariffs won’t affect jetliners and crude oil. It does seem that China is trying to walk a fine line between saving face and on the other hand not enraging the Trump Administration. But of course, President Trump has already said he is considering another round of trade tariffs on Chinese imported goods. According to Bloomberg, “US officials are expected to announce details of their plans to impose a 25% additional tariff on all remaining imports from China” that aren’t already being taxed. Some prominent economists are warning that a further escalation of trade tensions could dent US economic growth by .4% and could result in corporate capital spending growth falling flat this year. Most also agree that consequences for China will be significantly worse.