The day after China and the U.S. delivered the latest one-two punch in their protracted trade war, markets appear to have stabilized—for now.
Continued volatility, however, seems certain, with a 10 percent tariff on apparel looming, promising to raise clothing prices should they take effect as planned on Sept. 1.
U.S. stocks on Monday saw their single worst session of 2019, after China devalued its currency, the yuan, past the benchmark 7-per-dollar rate for the first time in more than a decade. U.S. equities sustained their most significant decline since December. The S&P 500 plunged 2.98 percent, the Dow Jones Industrial Average lost almost 800 points and the NASDAQ composite index declined 3.47 percent.
Because the move would make Chinese exports, like clothing and electronics, cheaper, MSNBC anchor and NBC News analyst Stephanie Ruhle said on the “Today Show” Tuesday morning that China’s play was a clear counterattack to the Trump administration’s newly announced 10 percent tariffs on $300 billion worth of Chinese goods.
Late Monday, the U.S. Treasury Department formally labeled China a currency manipulator, marking the first time since 1994 that such a designation was applied. In taking the action, the Treasury said “the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade.” The U.S. will also go to the International Monetary Fund to request that it closely monitor China’s currency practices.
“The United States Treasury’s designation of China as a currency manipulator represents an escalation of the trade tensions between the two countries,” Moody’s Investors Service’s vice president Martin Petch said.
Unless negotiations between the U.S. and China resume rapidly, Petch said this will likely lead to negative spillover effects on both China and the U.S., as well as and globally, particularly in Asia.
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“At this stage, we do not expect the U.S. Treasury designation to have any material impact on China’s foreign exchange policy,” he said. “Market expectations of potential further [Chinese currency] depreciation may also lead to depreciation in other currencies, particularly those with strong trading ties to China.”
On Monday, the People’s Bank of China (PBOC) set the yuan fixing at 6.97 against the U.S., a stronger rate than had been expected by consensus economists. However, since the PBOC allows the yuan to move 2 percent in either direction from its daily midpoint fixing, the currency could continue to hold past the 7-per-dollar rate and be within range.
Some economists said that in order to offset the 10 percent tariff the U.S. plans to impose, the dollar-yuan exchange rate would need to be in a range of 7.1 to 7.2.
Markets reclaimed some of their losses on Tuesday, with the Dow rising 1.21 percent, gaining back 312 points. The S&P 500 increased 37 points, or 1.3 percent, while the NASDAQ gained 1.39 percent.
After falling to 20.63 from 21.63 on Monday, Macy’s Inc. stock closed at 20.84. Walmart, which had dropped to 105.82 on Monday from an opening of 109.4, bounced back to close at 107.28.
Target Corp. closed at 82.81, after falling to 80.79 from 81.52 on Monday. TJX Cos. nearly made up its losses–closing at 52.35 from Monday’s decline to 50.70 from 52.36. Nordstrom Inc. bounced back to 30.55 on Tuesday after dipping to 30.20 from 30.79 on Monday. Gap Inc. stock was flat at 17.83 after opening at 18.04 on Monday.
Among apparel stocks, VF Corp. closed at 81.63, from a Monday that saw it open at 82.78 and close at 80.46. PVH Corp. made up some of its losses, closing at 77.88 on Tuesday after losing 3.9 shares to close at 76.60 the day before.
Guess Inc. made up for Monday’s 0.39 share loss to close Tuesday at 16.50. Levi Strauss & Co. shares fell again on Tuesday to close at 17.83, after a 0.24 share loss to close at 18.64 on Monday, while Kontoor Brands made up some of what it lost, finishing the day on Tuesday at 29.20 after falling to 28.47 from 30.07 on Monday.