Monday, 13 May 2019

Markets at risk of correction as US-China trade war escalates

Markets fell last week as tensions rose after US President Donald Trump threatend to raise tariffs on US$200 billion worth of Chinese goods from 10 percent to 25 percent, a threat that was subsequently carried out on Friday.

The S&P 500 fell 2.2 percent last week while the STOXX Europe 600 fell 3.4 percent.

Talks to resolve the trade dispute between the US and China ended without agreement.

Calculations by Oxford Economics indicated that the latest tariff hike by the US on Chinese goods, together with a likely retaliatory move by China, would reduce US gross domestic product by 0.3 percent in 2020 and Chinese output by 0.8 percent. The global economy would see a 0.3 percent hit.

Markets could sink if the US-China trade war gets worse.

"If the deal totally falls apart, we think there's a pretty big chance of a market correction," said Ryan Detrick, senior market strategist at LPL Financial. He suggested that US stocks could fall as much as 5 percent over the next month and even more elsewhere.

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