The growing trade war, especially between the US and China, continues to escalate. President Trump’s tariffs went into effect overnight, and this morning China announced new retaliatory tariffs against the US, raising their tariff on US goods to 84% from 34%.
Growing concern about the potential impact of tariffs on the world economy has put stocks under pressure again today. US index futures are down 1.8% to 2.3% with Dow Futures leading the way downward. In Europe today, the Dax is down 4.0%, while the FTSE is down 3.4%. In Asia Pacific trading, the Nikkei fell 3.9%, but the Hang Seng gained 0.7%.
Trading in bonds and currencies has been unusual. A flight into defensive havens is underway in precious metals with Gold up 2.6% and Silver up 2.3%. One would commonly expect US bonds to rally as well and push treasury yields down; instead, US bonds are selling off and the 10-year treasury note yield has jumped back up, close to 4.50%. In contrast, the German 10-year Bund yield is holding steady near 2.60%.
Given that currencies and treasury yields commonly trend in the same direction, as changes in interest rates are one factor generally driving the attractiveness of a currency relative to others, an anomaly is occurring today because while US treasury yields are climbing, the US Dollar is selling off big time. The Euro is up 1.3%, the Loonie is up 0.7%, the Aussie is up 1.2% and the Yen is up 1.5%.
Earnings season is approaching and today has brought two notable profit warnings. Blaming the growing impact of the tariff war on business and increasing uncertainty, both Walmart and Delta Airlines pulled their guidance for the coming quarter. Interestingly, shares of both companies are down less than 1% in premarket trading suggesting that a slowdown may have already been priced into some stocks.