China can not 'weaponise' USA bond sales without shooting itself in the head

New York Stock Exchange

New York Stock Exchange

USA stocks tumbled on Monday after China announced retaliatory tariffs on U.S. goods, heightening fears of a full-blown trade war between the world's two largest economies that could cripple global economic growth. Treasuries jumped with the Japanese yen on demand for haven assets.

The Dow Jones Industrial Average fell 617.38 points, or 2.38 percent, to 25,324.99. The new penalties also took aim at American farmers, driving down soybean and cotton prices.

Lyft Inc dropped 5.8 percent and Tesla Inc' shares fell 5.2 percent, the lowest in more than two years.

However, another set of Treasury data showed Japan sold $11.07 billion in US government debt in March, the most for U.S.'s No. 2 foreign creditor, since February 2018.

China this week announced it was raising duty rates on $60 billion in USA exports in retaliation for President Donald Trump's decision to do likewise on a $200 billion tranche of Chinese merchandise - with plans to extend tariffs to all Chinese goods sold to the United States.

Following President Trump's tweets on May 3 which stated that the United States will increase tariffs on Chinese exports, USDCNH overnight implied volatility skyrocketed from 2.91 percent to 6.51 percent and exploded further to 10.95 percent by May 9 as market risk and uncertainty took footing. Several strategists from banks including JPMorgan Chase & Co. and Morgan Stanley warned of the increased likelihood of a prolonged slowdown in global growth that would dent corporate profits. It was interesting it wasn't done on the weekend. Hong Kong equities fell more than 1% as the market re-opened after a holiday. Oil turned lower after rising earlier on concerns about rising tensions in the Persian Gulf. Earlier, European shares dropped more than 1% after the European Union said it was finalizing a list of US goods to target in the event Trump imposes levies on vehicle imports. Bitcoin climbed above US$7,000 as the recent gains in cryptocurrencies extended over the weekend.

Earnings this week include Vodafone, Alibaba, Tencent, Cisco, Nvidia.New York Fed President John Williams speaks at an event in Zurich. Kansas City Fed President Esther George and Richmond Fed President Thomas Barkin also make appearances.

Early on Monday, Trump returned to the topic, insisting US consumers had "no reason" to pay tariffs and that businesses would leave China to avoid paying increased tariffs. Australian unemployment is out on Thursday.

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