The Dow was set to fall nearly 400 points Monday morning after China escalated the trade war with the United States.
The Chinese government devalued the yuan to fall below its 7-to-1 ratio with the US dollar for the first time in a decade Monday. That could soften the blow the United States has dealt China with its tariffs.
The cheaper yuan ignited fear on Wall Street that the United States would respond with even higher tariffs, prolonging the standoff with China and potentially weakening the global economy. Investors are particularly concerned that the Trump administration could try to devalue dollar, sparking a currency war that could weaken Americans’ purchasing power.
Dow futures fell 1.2%, and the broader S&P 500 futures were down 1.3%.
Hit particularly hard were tech stocks. Facebook, Apple, Amazon, Netflix and Alphabet were all down more than 2%. Nasdaq futures, which are a kind of proxy for the tech industry, fell 1.7%.
The VIX volatility index soared 20%. The CNN Business Fear & Greed Index is indicating Fear.
Asian markets all fell more than 1.6% Monday, and Hong Kong’s Hang Seng dropped 2.9% as protests continue in the region. In Europe, both the London’s FTSE 100 and Paris’ CAC 40 declined more than 2%. The DAX shed 1.4% in Frankfurt.
The yuan weakened sharply after the People’s Bank of China set its daily reference rate for the currency at 6.9225, the lowest rate since December. The central bank said in a statement that Monday’s weakness was mostly because of “trade protectionism and new tariffs on China.” President Donald Trump threatened a new round of tariffs on the country last week.
Devaluing the yuan is one way China has of retaliating against the tariffs. A weaker currency helps Chinese manufacturers offset the costs of higher tariffs.
Analysts at Capital Economics said the move showed that Beijing has “all but abandoned” hopes for a trade deal with the United States.
