- The US Treasury Department has officially called China out for manipulating its currency to give itself “an unfair competitive advantage”. The accusation was in response to China setting its yuan to an 11-year low amid rising US tariffs against its goods.
- The escalation has spooked global markets, wiping between 2.9% and 3.5% from all major US indices and setting off a global sell-off. Overseas, 2.5% was slashed from the European FTSE, 1.8% from the German DAX and 2.2% from the French CAC.
- The price of iron ore plunged 6.6% while the price of gold, seen as a safe haven during stock market volatility, jumping around 1.6% as investors flocked to it.
- As markets across Asia get ready to open, a tsunami of selling is expected. The Australia stock exchange (ASX), the first major market to open, has futures indicating it could fall by around 110 points or 1.67% early on Tuesday.
- Other Asian stock markets are expected to follow suit, with falls of varying degrees predicted to unfold across the region.
In a significant escalation of the trade war, the US Treasury Department has said China has manipulated the value of its currency against the US dollar to grant itself an “unfair competitive advantage in international trade”.
While President Trump has long accused China of being a currency manipulator, this latest statement from Treasury signals neither side is backing down.
China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
— Donald J. Trump (@realDonaldTrump) August 5, 2019
The development came as the People’s Bank of China set the price of its currency, the yuan, on Monday to below 6.90 — sending it to an 11-year low. The weaker currency will help China counteract the latest US tariffs by reducing the cost of Chinese exports.
The latest spat between the world’s largest economies exacerbated investor fears, setting off a bloodbath of selling on Wall Street — the S&P 500 closed down by 3%, the Dow Jones by 2.9% and the tech-heavy Nasdaq (home to the likes of Apple and Amazon) down by 3.5%.
Given the potential impact of an all-out trade war, the sell-off extended overseas. The European FTSE fell 2.5%, the German DAX 1.8% and the French CAC by 2.2%.
Meanwhile, the price of commodities also took a battering, with iron ore plunged by 6.6% and Brent oil by 3.1%.
Tellingly, gold jumped to all-time highs against the British pound, the Japanese yen, as well as the Canadian and Australian dollars, as investors sought a safe haven from stock volatility. The price of Bitcoin, also seen as an alternative to stocks, jumped by around $US1000 to just under $US12,000 on Monday as well.
Eyes are now turning to Asia to see what the fallout might be when markets across the region open on Tuesday.
The Australian stock exchange (ASX) is the first major exchange to open. Hours before the session began, ASX futures were down 1.67%.
Futures on Hong Kong’s Hang Seng were down 5.15%, Japan’s Nikkei 225 2.65%, and Korea’s KOSPI 2.28%.
Business Insider Emails & Alerts
Site highlights each day to your inbox.