His surprise move last week to impose new tariffs on Chinese imports has thrown the Federal Reserve another curveball that may force it to cut rates more than the central bank had hoped was necessary to protect the economy from trade-policy risks.
On Wall Street on Wednesday, a drop-in bond yields caused stocks to fall, underlining tensions traders have over the U.S. trade dispute with China. It followed his own tweets last week that threatened tariffs on about $300 billion of Chinese goods, which would extend tariffs across nearly all Chinese imports.
President Trump offered this assessment: "China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers' wages and harm our farmers' prices".
The slide in the yuan's value drew sharp criticism Monday from Trump who called it "a major violation which will greatly weaken China over time". The S&P 500 fell almost 3% and the tech-heavy Nasdaq declined about 3.5%. "Investors looking to help mitigate the effects of the trade war could consider exploring small caps which tend to have little global exposure found in large- and mid-cap multinational companies".
Bond prices soared, sending yields sharply lower, as investors sought safety. The yield on the 10-year Treasury briefly rose to 1.77%, but then declined to where it stood a day earlier at 1.73%. Both are unusually large moves.
"Yesterday's big drop off has allowed bargain hunters to find bargains". The central banks of India, New Zealand and Thailand all dropped rates on Wednesday - and all of them acted more emphatically than anticipated. Only the S&P 500 and the Nasdaq Composite, however, managed to end the day in the green. The S&P 500 is 5.eight% under its report. "In our view, a USA recession is an 80% probability".
Communications services companies also notched solid gains.
"In other words, it could have used its currency management rules to steer the yuan even cheaper, but it did the opposite". It additionally provides extra downward strain on inflation, which some economists fear could also be edging towards too weak. "In the worst case, falling prices encourage people and companies to hold off on buying things, which starts a vicious cycle of less and less economic activity". News that China allowed its currency to depreciate against the dollar to its lowest level in 11 years sparked Monday's steep stock market sell-off.
The US Treasury Secretary Steven Mnuchin, who is reckoned to be a China-dove all these days, "announced that he has determined China is manipulating its currency to gain an unfair trade advantage - something President Trump argued earlier in the day on Twitter". During normal times, longer maturing bonds pay out higher yields than their shorter duration peers.
Bank of America fell 3.6%.
Solid earnings results helped lift other sectors. The index dropped 3 percent on Monday, its worst loss since December. "They will tumble far more", said Rabobank in a report.
Meat producer Tyson Foods jumped 9.1% for the biggest gain in the S&P 500 after it reported profits that were better than Wall Street expected. It added $20, or 1.4%, to $1,477.50 per ounce. Heating oil declined 2 cents to $1.82 per gallon. Brent crude oil, the worldwide standard, fell 87 cents to close at $58.94 a barrel.
Benchmark crude oil fell $1.06 to settle at $53.63 a barrel.
But the losses were limited on signs Washington and Beijing were backing off from a full blown trade war.