Trump broadcast sends markets spiralling

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This article was published 12/12/2018 (2730 days ago), so information in it may no longer be current.

Markets rallied out of the gate on Tuesday on hopes that the U.S.-China trade discussions may find traction toward solving their differences. But they quickly went off track.

The Dow Jones industrial average bounced up 355 points in initial trades after a wild Monday, then started slipping as the volatility of the past weeks shook markets again.

At lunchtime, in a tempestuous live broadcast, U.S. President Donald Trump told Democratic leaders Nancy Pelosi and Chuck Schumer that he would shut down the government if he does not get US$5 billion in funding to pay for partial construction of a wall along the southern U.S. border. In the course of the meeting, stocks swung into the red. The Dow sank more than 150 points in minutes.

“The market was looking good until Trump took a detour into crazy town during his meeting with Pelosi and Schumer,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners.

Traders are also closely watching for any developments on the trade dispute between the U.S. and China. It appeared that China had conceded to lower tariffs to 15 per cent, down from 40 per cent, on automobiles produced in America.

Early Tuesday, Trump touted the China negotiations in a tweet, which added to the optimism: “Very productive conversations going on with China! Watch for some important announcements!”

Then, just before the televised Oval Office meeting, news broke that the U.S. plans to condemn China over hacking and economic espionage, and that stalled any momentum in the market.

“Things were looking good with Trump’s favourable announcement on trade,” Feinseth said. “But when you are trying to work with China and then want to sanction them for hacking and espionage, how do you move forward? We started with talks on reducing auto tariffs and a potential trade deal, and somehow we made a detour into sanctions and espionage.”

The Dow and S&P were having their best day of the month, and the Dow rallied enough early thread back into positive territory for 2018. By mid-afternoon, the Dow was down almost 200 points, or 0.8 per cent. The Standard & Poor’s 500-stock index was off 0.6 per cent and the tech-heavy Nasdaq composite lost 0.5 per cent.

In Toronto, the S&P/TSX composite index ended the day off by 60.45 points to 14,667.83 despite enjoying a morning lift to an intraday high of 14,957.81.

“The U.S.-China trade and tariff news roller-coaster is the biggest driver of market sentiment this week,” said Luke Tilley, chief economist at Wilimington Trust. “Any news that tensions are ratcheting up would, in our view, weigh on market performance.”

The current round of trade negotiations began with a three-way phone call this week between U.S. Trade Representative Robert Lighthizer, Chinese Vice-Premier Liu He and U.S. Treasury Secretary Steven Mnuchin.

The phone call reinforced the view that the negotiations will proceed despite the arrest last week of Meng Wanzhou, the chief financial officer of China’s Huawei Technologies.

Meng was detained Dec. 1 in Vancouver. The U.S. wants to extradite Meng on charges of violating U.S. sanctions on Iran.

China has demanded Meng’s release and summoned U.S. Ambassador Terry Branstad to Beijing to register its unhappiness with the arrest. The Chinese government also has threatened “further actions” on the matter.

— Washington Post