U.S. equity futures fell and European stocks slumped on Thursday as China stepped up its trade-war rhetoric, roiling markets that had been starting to calm. Treasuries and European bonds rallied.
Futures for the three main U.S. stock gauges had jumped during the Asian session in the wake of Wednesday’s rout, but they reversed after Beijing pledged countermeasures to the next round of tariffs threatened by the White House, saying they violate accords already reached by Presidents Donald Trump and Xi Jinping. The Stoxx Europe 600 Index slumped as every industry sector fell. Earlier in Asia most benchmarks declined, though shares in Hong Kong and Shanghai finished higher.
Treasuries had been drifting but resumed their recent rally on the China news, with European bonds following suit. The dollar slipped as the pound, yen, and euro all strengthened. Gold reversed a decline. The onshore yuan edged lower after China’s central bank added liquidity to the financial system.
The unexpected signal from China that an American move earlier this week to delay some of the levies was not enough to stave off retaliation rattled already fragile markets. Traders will be on alert for a response from Trump as they await clarity from his comments linking Hong Kong turmoil to trade talks. They’re also waiting for data on U.S. retail sales and manufacturing.
“It’s a tough week with markets as volatile as they are,” said John Roe, the head of multi-asset funds at Legal & General. “Fundamentals are playing a central role but it’s not helped by trade war politics. Markets seemed calmer today after Trump’s more positive tone yesterday, but now China’s upping the rhetoric and it’s becoming a case of he said-Xi said.”
Elsewhere, the Australian dollar rose after a stronger-than-expected jobs report prompted traders to trim bets of another interest-rate cut. Oil extended a decline as a surprise gain in U.S. crude stockpiles added to deepening concerns over the outlook for global demand.