Global equities fell on Monday after their worst week of 2019, as hopes of an imminent U.S.-China trade deal were crushed and neither side showed a willingness to budge, raising fears of a fresh round of tit-for-tat tariffs.
The United States and China appeared at a deadlock over trade negotiations on Sunday as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.
“Looks like we are just slowly ebbing away. More tweets from Trump over the weekend stoking the fires for a trade war,” said John Woolfitt at London-based Atlantic Markets.
The impasse left investors bracing for threatened retaliation by China for Washington’s tariff increase on Friday on $200 billion worth of Chinese goods. The move followed accusations by U.S. President Donald Trump that Beijing had reneged on earlier commitments.
The pan-European Stoxx 600 slipped 0.7% while S&P 500 futures shed 1.3%.
Chinese shares tumbled, with the benchmark Shanghai Composite and the blue-chip CSI 300 shedding 1.2% and 1.8%, respectively, while Hong Kong’s financial markets were closed for a holiday.
Japan’s Nikkei average sank as much as 1.0% to hit its lowest level since March 28, before closing down 0.7%.
“How far this escalates is what the market is really worried about as we haven’t really got full details of what the U.S. will do and how China will retaliate. The important thing is what’s the impact on growth, and that’s what the market is really fearing,” said Justin Oneukwusi, portfolio manager at Legal & General Investment Management.
White House economic adviser Larry Kudlow told the “Fox News Sunday” program that China needed to agree to “very strong” enforcement provisions to secure a deal. He said the sticking point was Beijing’s reluctance to put into law changes that had been agreed.
Kudlow said U.S. tariffs would remain in place while negotiations continued and there was a strong possibility that Trump would meet Chinese President Xi Jinping at a G20 summit in Japan in late June.
“The risk of a full-blown trade war has materially increased, even though both sides seem to still want a trade deal and talks are expected to continue,” UBS economist Tao Wang said.