Markets struggle to find direction as U.S.-China trade row escalates


North American stocks recovered some losses on Wednesday afternoon after getting off to a rocky start as the world’s two biggest economies released details of tariffs against each other, heightening global trade war fears.

China released a list of 106 U.S. goods valued at $50 billion US on Wednesday that could face a 25 per cent tariff increase. The goods include soyabeans and aircraft. 

Officials did not give a date for when the hike would take effect, but said it would depend on when the U.S. decides to raise taxes on a similar amount of Chinese goods.

The move comes after the U.S. issued a list of Chinese products on Tuesday that could see tariff increases. Sectors that would be affected include aerospace, telecoms and machinery.

Meanwhile, U.S. President Donald Trump used Twitter again on Wednesday to respond to China’s announcement.

In New York, the benchmark Dow Jones industrial average fell 0.3 per cent, or 72 points, to 23,961, while the broader S&P 500 lost 0.2 per cent to 2,610 points.

The tech-heavy Nasdaq composite changed direction to head higher by 0.3 per cent to 6,964. All three major indexes had seen steeper losses in morning trading.

‘Risk-off’ bias

“Uncertainty over next steps as tensions escalate between the U.S. and China is driving a strong risk-off bias across global asset classes,” said Derek Holt, vice-president at Scotiabank Economics in a note. “The world’s ‘leaders’ are once again finding a way to blow what was otherwise shaping up to be a good picture for 2018.”

Mazen Issa, foreign exchange strategist at TD Securities, added that while both parties seem intent on avoiding a full-blown trade war, it is not “hard to envision how each could stumble into one.”

Companies in the IT, consumer discretionary and consumer staples sectors could be the most vulnerable in a trade war, said Oliver Jones, markets economist at research firm Capital Economics.

“This is presumably in part because all three depend on globalized supply chains which might be particularly vulnerable to a further deterioration of trade relations,” he said in a note.

Shares of U.S. exporters in industrials, IT and materials, including big names like Boeing and Caterpillar were still among the worst performers on the indexes on Wednesday. 

Canadian stocks

Meanwhile, the Canadian market followed the global trend to head lower.

The S&P/TSX composite index lost 0.5 per cent to 15,103 points, with the majority of its sectors in the red.

The losses were led by health-care stocks, particularly involving marijuana producers, which continued to decline.

Investors fled to the safety of gold, with the world’s largest producer, Barrick Gold, rising 0.4 per cent.

The Canadian dollar was down to 77.95 cents US from Tuesday’s average price of 78.05 cents.


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