US stocks staged a late session sell-off as the Trump administration’s decision to impose visa restrictions on Chinese government officials connected to the mass detention of Uighurs in western China revived concerns about trade tension between the world’s two biggest economies.
That took investors’ focus off Jay Powell, who shortly before the visa news, announced that the Federal Reserve would resume purchases of Treasuries in an effort to prevent a repeat of the recent disruption in short-term lending markets.
The late tumble saw the S&P 500 finish 1.6 per cent lower, the fourth move of 1 per cent or more in either direction — or its third 1-plus per cent drop — in the space of six sessions.
The Nasdaq Composite shed 1.7 per cent and the Dow Jones Industrial Average was down 1.2 per cent.
The broader fall came against the backdrop of declining borrowing rates as investors, unnerved by another flare-up in US-China trade tension, sought the relative safety of government debt.
Fed chairman Jay Powell’s comments prompted a rally for shorter-term government debt instruments, though. The yield on the policy-sensitive two-year Treasury was down 3.8 basis points at 1.4255 per cent. The yield on the benchmark 10-year was down 1.7bp at 1.5357 per cent.
US-China trade talks are scheduled to resume on Thursday, with analysts remaining dubious on the likelihood of a game-changing outcome. “We see some possibility of a truce, but a comprehensive trade deal remains unlikely,” BlackRock said in a note.
The Trump administration said late on Monday it will restrict companies from exporting American-made goods to 28 more Chinese entities, in an announcement that came three days before the visit of Liu He, Beijing’s chief trade negotiator with the US, to Washington.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said he expects “only modest progress” in the talks.
“Given the recent deterioration in economic data, we retain a tactical underweight position in equities while awaiting the result,” he said.
Data released before the Wall Street open showed US core producer prices fell in September by the most in more than four years, giving the Federal Reserve more flexibility on monetary policy at its late October meeting.
In Europe, the broad Stoxx 600 benchmark and Germany’s Dax were each down 0.9 per cent, while France’s Cac 40 shed 0.9 per cent. The UK’s FTSE 100 was down a relatively milder 0.4 per cent.
Sterling weakened 0.5 per cent against the euro, hovering just off the threshold of 90p per €1, or €1.1150 per £1, as hopes of a Brexit deal at next week’s EU summit fizzled. Boris Johnson’s allies admitted on Tuesday that any hopes the UK will strike a deal with Brussels at the meeting were effectively dead.
Asian markets rallied overnight. China’s CSI 300 was up 0.6 per cent on its return following a week’s holiday. In Hong Kong, the Hang Seng index was also 0.3 per cent higher, rising from a five-week low despite four days of often violent protests after the city’s chief executive invoked a colonial era emergency law to ban demonstrators from wearing face masks.
South Korea’s Kospi rose 1.2 per cent, and technology shares outperformed across Asia, after Samsung’s third-quarter results beat forecasts.
The Turkish lira remained under pressure after US President Donald Trump threatened to “obliterate” Turkey’s economy if the country launched any operation in Syria that he considered to be “off limits”. The currency was hovering at its weakest in more than a month at TL5.8356 against the US dollar.