A maelstrom of anxieties dragged down global markets Tuesday, as ongoing Brexit chaos and worrisome manufacturing data dovetailed with a tense impasse in the U.S.-China trade war.
The Dow Jones industrial average plunged 425 points at its deepest depth Tuesday morning, but the blue chips staged a mini-rally in the last hour of the session. It finished at 26,118, down 285 points, or 1 percent.
The tech-heavy Nasdaq finished the day at 7,874, an 88-point decline, or about 1.1 percent. Tech stocks were hit hard, with Apple, Microsoft and IBM lower. The broad Standard & Poor’s 500 closed the first trading day of September at 2,906, a loss of 20 points, or 0.7 percent. China-exposed heavyweights Apple and Caterpillar were down more than 1 percent
The latest rounds of tariffs from both nations took hold over the weekend, with each piling on to the hundreds of billions of dollars in imports already tied up in the year-long conflict.
Despite dovish remarks from leaders on both sides late last week, there has been no word on when new negotiations will take place.
On Monday, Beijing lodged its third complaint against the United States with the World Trade Organization, saying Washington’s latest duties violated an agreement reached at the Group of 20 summit in Osaka, Japan.
U.S. markets kicked off September in the red after a particularly volatile August, which included several big one-day tumbles for the Dow.
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August also saw the yields — or returns — on short-term U.S. bonds eclipse those of long-term bonds for the first time since the financial crisis, a phenomenon that has preceded every recession since 1955 and signals that investors are scrambling for safer assets.
The Manufacturing Purchasing Managers’ Index fell to its lowest level since September 2009, while new export orders fell at their quickest pace in a decade, “linked by many firms to trade wars and tariffs.”
Though manufacturing is a relatively small sector of total U.S. output at around 12 percent of gross domestic product, it is seen as a barometer for economic health. As the manufacturing sector in August signals a contraction, it suggests inflation risk is low but the potential for a U.S. recession is more likely.
“The manufacturing sector has broken and is now in a recession,” Chris Rupkey, chief financial economist at MUFG Union Bank, wrote in a note to investors Tuesday. “The U.S. trade war with the world has blown open a great big hole in manufacturers’ confidence, and it will be a miracle if the broader economy can continue to roll on with manufacturing in decline.”
The U.S. manufacturing sector contracted in August for the first time since 2016, according to an IHS Markit industry report.
The British pound sank to its lowest level since October 2016, as rebel members of Parliament prepared to push for a three-month Brexit delay in defiance of Prime Minister Boris Johnson’s plan for Britain to exit the European Union by the end of October, with or without a deal.
“The market hates uncertainty and that extends to politics. The current chaos around the UK exiting the EU threatens to push down sterling even further unless we get a clear idea of what is happening and when,” Russ Mould, investment director at AJ Bell, said in a note to investors Tuesday.
In tweets Tuesday, President Donald Trump said negotiations with China were going well, then threatened to crack down even harder on the world’s second-largest economy if he wins reelection in 2020. He hinted he may target the European Union next.