Despite brighter risk sentiment emerging during pre-market trading after stronger-than-expected yuan stabilization, the Dow Jones succumbed to the crushing weight of the trade war following the opening bell.
Heading into the afternoon session, the index is up a measly 0.48% at 25,840.91 after eyeing a multi-hundred point surge earlier in the day.
For Western stock markets, it was supposed to be a turnaround Tuesday, as China’s monetary actions were viewed as an apparent de-escalation by many in Asia.
However, European stocks dipped sharply late, and the FTSE 100 and DAX flipped to close in the red.
The Dow followed suit as the bears returned and briefly forced the index into decline. Unsurprisingly, the battered Nasdaq was up 0.5% after the colossal 3.6% shellacking it took yesterday.
The decision by the US to label China a currency manipulator has been a long time coming, but is not technically as big a deal as markets initially suggested. The tariffs that have already been installed by President Trump are more severe than any of the vague legal sanctions associated with the manipulator moniker.
According to Robert Carnell, Chief Economist & Head of Research for the Asia Pacific region at ING, the nervous stock bulls are correct to lack conviction. Now that Trump appears to be in control of trade policy, further Dow-damaging tariffs could be on the way.
“Far from looking like the PBoC is embarking on an aggressive depreciation, it is looking more likely that they are now trying to put the brakes on yesterday’s move… We now have to wait to see how the US President views today’s move, as it looks like he is personally taking control of US trade policy. If he views it negatively, the next step for the US could be to consider increasing the tariff rate on the latest $300bn of goods from the planned 10%, to 25%. Then we will have to see how China responds to that. Watch this space,” Carnell said.
There is no question that Dow stocks are much more mixed today than they were yesterday. While Apple, Nike, and Microsoft are enjoying bounces of more than 1%, Boeing and Caterpillar, both with massive exposure to China, are in the red.
Interestingly, one of the worst performers of the day is Verizon (-1.1%), a stock that swam against the tide during Monday’s market turmoil.
The Dow Jones might technically be higher today, but because of the gap, an indecisive Doji is forming on the daily chart. A meager bounce isn’t very encouraging for stock bulls looking for easy money buying the dips. It will be a nervous few hours into the close of trade for the Dow.