Stocks Whipsaw as Traders Face Conflicting Trade War Signals

By Alexandra Stevenson*, Amie Tsang and Matt Phillips –  The New York Times
Stocks in the United States swerved up and down on Thursday after China sent conflicting signals about how it would respond to President Trump’s threats of new tariffs and investors took some solace in upbeat economic and earnings data.
The positive signs included an increase in retail sales in the United States in July, according to the Commerce Department, and stronger-than-expected earnings from Walmart, which raised its outlook for sales this year. The Chinese e-commerce giant Alibaba also released strong financial results.

Wall Street’s early gains were just the latest in what has been a turbulent stretch for stocks. Markets around the world have been whipsawed this month by mixed signals about the state of the trade war between the United States and China and growing evidence that the dispute is already slowing global growth, especially in the manufacturing sector.
The continuing stock market volatility reflects the enormous uncertainty investors are feeling as the high-stakes dispute between the world’s two largest economies — one run by an opaque government, the other led by a president prone to firing off inflammatory messages on Twitter — drags on.
On Thursday at least, a statement from the Chinese government released just before the start of trading in the United States, helped to lower the tension.
“We hope the U.S. can work in concert with China to implement the two presidents’ consensus that was reached in Osaka, and to work out a mutually acceptable solution through equal-footed dialogue and consultation with mutual respect,” Hua Chunying, the foreign ministry representative, said in the statement. The consensus in question was hashed out by President Trump and Xi Jinping, China’s leader, in June, when they agreed to resume trade talks.
The truce appeared to disintegrate this month amid Mr. Trump’s threats of new tariffs and a decision by Chinese officials to allow the country’s tightly controlled currency weaken, developments that suggested the two sides were girding for a standoff that could last indefinitely.
In recent weeks, data has shown that the fight is taking a toll on industrial economies around the world. Closely watched surveys in Britain, China, Germany and Japan have all indicated that the industrial sectors in those countries are contracting.
There are also growing signs of industrial weakness in the United States. On Thursday, reports showed that America’s industrial production fell 0.2 percent in July from the month before, more than economists had expected.
On the flip side, there is little evidence that the American consumer sector, the primary driver of growth in the United States, has been hurt by the trade fight. Unemployment remains near its lowest levels in a half-century. Government data released on Thursday appeared to confirm consumer demand remains robust, with retail sales showing a better-than-expected 0.7 percent gain in July from the month before.
But the trade fight is far from over, as an earlier statement from Beijing on Thursday showed.
That statement appeared to increase tensions by threatening a response should Mr. Trump carry out his vow to place a 10 percent tariff on billions of dollars of Chinese imports as of Sept. 1. The statement, attributed to an unidentified Chinese cabinet official, did not specify what the countermeasures would be.
The threat of additional tariffs has added to fears about the global economic outlook and pushed markets lower around the world. Those fears were evident on Wednesday, after investors worried about global growthgave Wall Street one of its worst days this year. The S&P 500 index fell 2.9 percent.
In the United States, bond markets have begun to hint that a recession there could come soon.
On Thursday, the 30-year bond yield briefly fell below 2 percent for the first time on record, reflecting increased demand for Treasuries as investors pull their money from riskier stocks, said Joshua Mahony, a senior market analyst at IG Group in London. “Yields are falling across the board, it’s a flight to safety,” he said.
The drop below 2 percent for the first time was “historical and rare in nature” and “points toward substantial fear,” he added.
Markets were also hit on Wednesday by glum economic news from Germany and from China.
Complicating that outlook is the situation in Hong Kong, a semiautonomous Chinese territory. Hong Kong residents have been protesting China’s growing involvement in daily life. In recent days, violence has led Chinese state media to make thinly veiled threats about military intervention.
“There were a handful of catalysts adding to the markets’ roller-coaster ride, including continuing civil unrest in Hong Kong and escalating fears that trade relations with China are becoming even more derailed,” said Tom Stringfellow, chief investment officer at Frost Investment Advisors, in an emailed note, referring to Wednesday’s slump.
Late on Wednesday, Mr. Trump suggested that the fate of the trade war and Beijing’s response to the Hong Kong protests could be linked. “Of course China wants to make a deal,” he wrote on Twitter. “Let them work humanely with Hong Kong first!”
The tenor from many economists has grown more pessimistic as the trade war has escalated. Last week, global currency markets were shaken after Chinese officials raised the specter of a currency war with the United States in response to a new tariff threat from the Trump administration.
“Markets are reacting on the fear that the additional threats of more tariffs by the Trump administration will result in a slower-growing global economy,” said Steve Cochrane, the chief Asia Pacific economist at Moody’s. “The risk of recession in the U.S. is not overstated,” he said.
Last week, Goldman Sachs flagged concerns about the United States economy after Mr. Trump threatened to put the 10 percent tariffs on additional Chinese goods. Goldman said the threat added to fears of a recession.
Earlier this week, Trump administration officials clarified which tariffs they would increase on Sept. 1, leaving certain Chinese goods off the list until December, like laptops, cellphones and toys.
That move did little to ease the concerns of some experts.
“We are in uncharted territory with few historical precedents to guide us,” said Shaun Roache, chief economist for Asia Pacific at S&P Global. “The latest temporary reprieve on tariffs does little to ease this uncertainty.”
Asian markets ended mixed, as some clawed back losses from earlier in the day.
In Japan, the Nikkei 225 index fell 1.2. The S&P/ASX 200 index in Australia, one of the first markets to begin trading on Thursday, fell 2.85 percent.
But Hong Kong’s Hang Seng Index ended up 0.8 percent. In China, the Shanghai Composite Index rose 0.3 percent.
London’s FTSE 100 index had sunk more than 1 by late afternoon. In France, the CAC 40 index was down slightly as was Germany’s DAX index. Aug. 15, 2019
Sui-Lee Wee contributed reporting.
*Alexandra Stevenson is a business correspondent based in Hong Kong covering Chinese corporate giants, the changing landscape for multinational companies and China’s growing economic and financial influence in Asia.