(Reuters) – Wall Street’s main indexes lost more than 1% on Friday after President Donald Trump said U.S. companies should “immediately start looking for an alternative to China” after Beijing officials earlier retaliated by imposing tariffs on U.S. goods.
Bond yields also fell further after Trump tweeted he was ordering U.S. companies to look at ways to close their operations in China and make more of their products in the United States instead, a rhetorical strike at Beijing as trade tensions mounted.
STOCKS: The S&P 500 erased slight gains and was last down 1.66%
BONDS: U.S. Treasury yields fell; 2s at 1.5127%; 10s at 1.5334%
FOREX: The U.S. dollar index erased slight gains, last off 0.42%
DAVID KATZ, CHIEF INVESTMENT OFFICER AT MATRIX ASSET ADVISORS IN NEW YORK
“He seems to be irate that China reacted to what the U.S. has done and is basically having a mini tantrum and is angry at everybody. He’s angry at China, he’s trying to put the blame on the market and the economy on Powell. But at this point, it’s very clear to all of the media, to all of the economists, to all of the market strategists and then to most of the public that the issues that have been coming to fruition of late with the economy and the slowdown are all trade-related and have very little to do with the Fed.”
“In terms of how this proceeds, he indicated he will be making an announcement later today on trade and if you look at his track record there will be an escalation of something or other, something more inflammatory, and that’s what the market is reacting to.”
CRAIG BISHOP, LEAD STRATEGIST OF FIXED INCOME GROUP, RBC WEALTH MANAGEMENT, MINNEAPOLIS
“It’s pretty clear to me that Powell was a sending message that if you are so concerned about the economy, lowering rates is not going to help you. You need to do something about trade. That’s not a message Trump gets. We (the bond market) were improving before the tweets. The Fed will continue to cut rates going forward, not just in September.
“We don’t know what Trump will announce later today after China’s tariff move. It has certainly heightened concerns about trade and its drag on global growth. It has heightened chances of a recession. The President is his own worst enemy when he tries to manage both fiscal and monetary policies.
“You still have the G7 this weekend. You don’t know what’s going to come out of that. Being in Treasuries make sense. We continue to favor in duration in portfolios for some time. That’s the way to play this. From a safety standpoint as a short-term place to hide, short-dated Treasuries may make sense too.”
MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST, JONESTRADING, GREENWICH, CONNECTICUT
“There is a lot of worry here. I would say what he’s (Trump) tweeting is disconcerting. It’s a fair reaction from the markets. I don’t think anyone thought we’d get to this level.”
“Interest rate cuts, while they help the economy, they’re not going to be enough to offset a major global trade war. It seems that’s the direction we’re heading in.”
“It’s setting up to be a long-drawn affair that is going to weigh on the global economy.”
KEN POLCARI, MANAGING PRINCIPAL, BUTCHER JOSEPH ASSET MANAGEMENT, NEW YORK
“The market sold off initially then they rallied it back, then Trump starts sending out tweets ordering companies to look for alternative sources. It is mind-boggling, on one day he tells you everything is going great with China and today he is saying everyone get out of China. It is stupid. It is complete stupidity, so the market tanks because it is so erratic. The market is anxious, there is a lot of anxiety whether it is over rates, over trade or another tweet. The path of least resistance is lower right now, not meaning it is going crash, it is just lower and that is exactly what it is doing.”
“That is why the market is taking the most recent dive south is just because of his tweets. Not because of Jackson Hole or anything Powell said. It’s all driven by the anxiety and it’s Friday and a lot can happen over the weekend.”
RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN
“I have had this fear all along, since this whole thing began way back last year, that the ultimate goal here was not a new trade agreement with China but an actual full-blown cold war with China where we cut all ties with them and all trade. We are not there yet, obviously, but each time he sends a tweet like that …”
“He sends a tweet out about restricting all the carriers from shipping in Fentanyl. Imagine a day where he sends out a tweet where he says all shipments cannot be brought in anymore. We are a long way from that but these types of things are not helping matters any.
“The market clearly does not like these tweets. It’s reaction is decidedly negative.”
MARVIN LOH, SENIOR GLOBAL MARKETS STRATEGIST, STATE STREET, BOSTON:
“Clearly when you look at U.S. yields’ and the dollar’s reaction, there are concerns that these latest comments from Trump on China will push the U.S. into recession. Even since this morning, an additional 10 basis points in rate cuts have been priced into the end of next year. Recession risks are certainly rising.”
SUBADRA RAJAPPA, HEAD OF U.S. RATES STRATEGY, SOCIETE GENERALE, NEW YORK
“There’s a tweet saying that he’s going to respond to China tariffs with something this afternoon, so I think that this is a clear sign of an escalation of a trade war. You have the U.S. raising tariffs, and China responding today, and the U.S. could potentially respond later on today. That’s really what the market’s responding to — this heightened rhetoric between the U.S. and China with no clear path to a timely resolution.”
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