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Dow Futures Plunge After Bloomberg Report Dashes Hopes for China Trade Deal

Last Updated September 23, 2020 1:06 PM
Sam Bourgi
Last Updated September 23, 2020 1:06 PM

Futures on the Dow and broader U.S. stock market declined sharply in overnight trading Monday amid reports that Beijing had narrowed the scope for upcoming trade talks with the United States, dashing any hope of a comprehensive deal.

Dow Futures Slide to Start the Week

Futures contracts on all three major U.S. indexes fell during the Asian session. Futures on the Dow Jones Industrial Average (DJIA) fell by as much as 186 points. The contract was last down 103 points, or 0.4%, at 26,422.00.

Dow Jones futures
Futures on the Dow Jones Industrial Average point to volatile start to New York trading. | Chart: Bloomberg

S&P 500 futures contracts declined 0.4% to 2,939.50. The Nasdaq 100 mini contract also fell 0.4% to 7,736.00.

The U.S. stock market rose sharply on Friday, ending a volatile week on firm footing after the Labor Department’s ‘goldilocks’ jobs report showed unemployment fell to 50-year lows in September.

China Narrows Scope for Upcoming Trade Talks

Futures markets were on edge Monday after Bloomberg reported  that China is putting firm limits on the types of policy changes it will entertain at its upcoming trade summit in Washington.

The report suggested that China is increasingly reluctant to agree to a comprehensive trade agreement coveted by President Trump. Vice Premier Liu He, China’s top trade negotiator, reportedly said Beijing will not accept any changes to industrial policy or government subsidies – two of the major sticking points in the yearlong negotiations.

Negotiations are set to begin Oct. 10 in Washington and continue the following day. Both sides had been working behind the scenes to find common ground on a framework for a new trade deal, which generated optimism on Wall Street that progress was being made. If both sides fail to reach an agreement, the Trump administration could hike tariffs Oct. 15 on up to $250 billion worth of Chinese goods.

The Trump administration has made it clear that it isn’t looking for a stopgap arrangement that would delay tariffs.

The U.S.-China trade war has affected both countries negatively. China’s manufacturing sector has been in firm decline for the past five months, while the U.S. side is also showing glaring signs of recession.

Officials at the Federal Reserve have cited trade tensions as a major catalyst for the dovish shift in monetary policy. Just one year ago, the Fed was raising interest rates aggressively. Now, officials will likely initiate  their third rate cut in as many meetings later this month.