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May 13, 2019

US Futures Indications: Dow futures point to a 300-point drop after Trump warns China against retaliating in trade war

Fred Imbert,Eustance Huang,Silvia Amaro

U.S. stock futures pointed to sharp losses on Monday as President Donald Trump ratcheted up pressure against China to make a trade deal, intensifying tensions between the world’s largest economies.
As of 7:23 a.m. ET, Dow Jones Industrial Average futures indicated a drop of about 300 points at the open. S&P 500 futures pointed to a loss of 1.2% while Nasdaq 100 futures indicated a drop of 1.6%.
Trade bellwethers Caterpillar and Boeing fell more than 1% each while Apple dropped more than 2.5%.
Asian markets fell broadly. The Nikkei 225 index declined 0.7% overnight while the Shanghai Composite pulled back 1.2%.  European stocks also dropped. The Stoxx 600 index fell 0.5% while the German Dax dipped 0.7%.
Trump tweeted on Monday that China will be “hurt very badly if you don’t make a trade deal, ” noting that companies would be forced to leave the country without an agreement. Trump also said that China had a “great deal” almost completed but they “backed out.”
“In the immediate term, we would be watching to see if China retaliates against last Friday’s tariff increase. The performance of the equity markets would also be critical. Thus far, the selloffs in China and the US indices have been minor. A more serious decline could prompt more urgency by both sides to reach a deal,” strategists at Singapore’s DBS Group Research wrote in a note.
Trump said on Saturday that China should act now to make an agreement — or it would risk facing a worse deal if negotiations continue into a possible second term after the 2020 presidential election.
The president claimed China was “beaten so badly” in recent trade negotiations that Beijing wanted to wait until after the 2020 election in the hope a Democrat would win the White House and offer them a better deal.
Trump also tweeted on Monday that China has “taken so advantage of the U.S. for so many years, that they are way ahead (Our Presidents did not do the job). Therefore, China should not retaliate-will only get worse!”
Yet despite that tension between the world’s two largest economies, White House economic advisor Larry Kudlow said Sunday that Trump and Chinese President Xi Jinping are likely to meet at the June G-20 summit in Japan. Kudlow said the chances of such as meeting “were pretty good,” but he said there are “no concrete, definite plans” for when U.S. and Chinese negotiators will meet again.
U.S. equities fell sharply last week after Trump threatened to hike tariffs on China. Trump followed through on his threat, raising levies from 10% to 25% on $200 billion worth of Chinese goods. The S&P 500 and Nasdaq fell 2.2% and 3% last week, respectively, their worst weekly performances since December. The Dow had its worst week since March, dropping 2.1%.
Although some of those losses were mitigated on Friday after stocks staged a massive comeback. That positive sentiment was boosted by the U.S. president saying in a Friday afternoon Twitter post that the latest round of trade talks with China’s delegation — which concluded after tariffs had already been increased — had been “candid and constructive.”
Elsewhere, the calendar is thin with no economic data releases nor big corporate results due. Boston Fed President Eric Rosengren and Fed Vice Chairman Richard Clarida are due to speak at 9:10 a.m. ET.
—CNBC’s Spencer Kimball contributed to this report.

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