Fresh Trade Threat Drags on Global Stocks

Ben St. Clair

Updated July 11, 2018 8:43 a.m. ET

U.S. proposes new tariffs on $200 billion of Chinese goods
Treasury yields decline, dollar edges up
Crude futures, copper fall

Stocks and commodity prices fell sharply Wednesday as concerns over escalating trade tensions cut into the week’s gains.

Futures pointed to a 0.7% opening loss for the S&P 500 while the Stoxx Europe 600 was down 1.1% in afternoon trading, pushed down by shares of mining, auto and oil-and-gas companies. Asian markets closed lower, with Shanghai notching some of the biggest losses.

The Trump administration said Tuesday it would assess 10% tariffs on an additional $200 billion in Chinese goods. The tariffs, which wouldn’t come into effect for at least two months, cover a variety of Chinese goods, including tuna, salmon and other fish, luggage, tires, dog leashes, handbags, baseball gloves, furniture, apparel and mattresses.

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China has pledged to retaliate against U.S. tariffs in “equal scale and equal strength.” In addition to tariffs, here are three ways Beijing could hit back at Washington. Photo: Getty Images

China called the move “totally unacceptable” in a statement attributed to an unnamed ministry spokesman and vowed to roll out unspecified countermeasures.

Shares of commodity-linked companies were among the hardest hit on Wednesday, as commodity prices were also pressured by a strengthening dollar. The WSJ Dollar Index, which measures the U.S. currency against 16 others, was up 0.4%.

Copper futures were down 2.5% at around one-year lows. The metal, which is seen by many analysts as a barometer for global economic health, has been hit especially hard amid the escalating trade worries.

The “step by step escalation in actions” on trade raises concerns for global growth, said Kristin Magnusson Bernard, global head of macroeconomic research at Nordea Bank. The product-specific tariffs may lead to price increases for U.S. consumers, and companies may cut back investment amid increased uncertainty and possible supply chain disruptions, she said.

Many analysts and market participants remain unsure what exactly China could do in response to the latest round of tariffs. “Instead of directly going for U.S. products, China could reduce tariffs from non-U.S. trading partners, having a more dilutive effect and diverting money away from U.S. products,” said Kash Kamal, an associate at BMO Capital Markets.

Shares of oil-and-gas companies also fell sharply in Europe as Brent crude, the global benchmark, reversed course from gains earlier in the week, falling 2.3% to $77.07 a barrel. Prices came under pressure after Libya indicated it would resume export activities at its eastern ports.

Shares of BP were down 2.3% and Royal Dutch Shell dropped 1.7%

Less economically sensitive stocks in Europe, including food and beverage, telecom and utilities, fared better than banks and auto companies, which have fallen sharply as trade tensions have appeared to escalate.

The European auto sector was down 1.9% Wednesday, bringing its losses this year to 10%.

A CSCL East China Sea container ship at the Port of Oakland, Calif. The tariffs cover a variety of Chinese goods, including fish, luggage, tires and dog leashes. Photo: Justin Sullivan/Getty Images

Market participants had been tentatively optimistic on trade earlier in the week, driving stocks higher as they looked toward what are expected to be positive second-quarter earnings reports.

Analysts expect earnings from S&P 500 companies to grow roughly 20% in the second quarter from the year-earlier period, according to FactSet.

If stocks decline, it won’t be due to earnings, Bob Phillips, managing principal at Spectrum Management Group, said. Instead, the “trade war getting out of hand” would depress stocks, Mr. Phillips said.

Meanwhile, U.S. President Donald Trump reiterated criticism on Wednesday of what he sees as insufficient military spending from European allies.

In Asia, Hong Kong’s Hang Seng dropped 1.3% amid losses in tech companies and China’s Shanghai Composite Index fell 1.8%, snapping a three-day winning streak. Japan’s Nikkei fell 1.2% and South Korea’s Kospi was down 0.6%.

As stocks declined, yields on 10-year Treasurys fell to 2.841% from 2.873% on Tuesday. Yields fall as prices rise

—Bob Davis and David Hodari contributed to this article.

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