- US equities pared gains as China’s retaliatory measures weighed on the risk sentiment.
- China’s sanctions on US-linked South Korean subsidiaries triggered a fresh wave of risk aversion.
- Investors are now focused on the Fed Chair’s speech and the Q3 earnings season.
US equities came under renewed pressure amid escalating tension between the US and China, partially fading yesterday’s optimism. The S&P 500 futures slipped 0.7% while the Nasdaq 100 lost 0.9% amid heightened uncertainty.
China’s announcement of retaliatory measures triggered a fresh sell-off. China placed sanctions on five US-linked subsidiaries of South Korean shipbuilder Hanwha Ocean and warned of more measures in response to US trade barriers. The move reignited the trade war fears that undermined confidence after the US President’s more conciliatory remarks. Panmure Liberum strategist Susana Cruz said, “I’d expect increased volatility following the escalation of the trade war with China.” She also noted that some sectors remain stretched after months of gains.
Wall Street had seen a strong rebound on Monday with the S&P 500 gaining 1.65% and the Nasdaq Composite jumping 2.2%, while the DJIA climbed 1.3% after Trump left positive remarks, shedding off his previous threats to impose 100% tariffs on Chinese goods. The remarks briefly calmed equities, supporting chipmakers and AI stocks in extending their gains. Broadcom surged around 10% after the headlines of its partnership with OpenAI, while Nvidia gained around 3%.
From Asia, the MSCI Asia Index dropped for a third consecutive session, led by a 3.2% loss in the Nikkei 225. The European bourses fell 0.7% amid reduced global risk appetite. Investors are now eying Q3 earnings season, kicking off from today with Citigroup, Goldman Sachs, and JPMorgan results.
Adding further to the uncertainty, the US government shutdown has entered its third week, delaying key data releases, including CPI data due on Wednesday. The Fed Chair Jerome Powell’s speech is due on a day that could provide fresh impetus to the markets and the probable policy path. His signals will be more important to watch as the central bank balances against geopolitical risks.
