USA stocks tumble as China hikes tariffs

Galtero Lara
May 18, 2019

Former Dallas Fed advisor Danielle DiMartino Booth, Wall Street Journal assistant editorial page editor James Freeman and Layfield Report CEO John Layfield on whether the U.S.

China sold the most U.S. Treasuries in nearly 2-1/2 years in March amid uncertainty about a trade deal between Beijing and Washington, data from the U.S. Treasury Department released on Wednesday showed.

In turn, China responded by imposing tariffs as high as 25 percent on nearly 2,500 US goods, worth a combined $60 billion in annual exports.

Since last week after a dismal 10-year Treasury auction, there has been renewed speculation whether China may sell its US debt in retaliation for increased tariffs on $200 billion of its exports to the United States. -China trade dispute will push the Federal Reserve into lowering interest rates.

"To the extent that China's Treasury sales could be either the cause or the effect of a more risk-averse global environment, the positive impact on Treasury yields could be smaller than estimated if private investors step up their Treasury purchases", UBS strategist Chirag Mirani and others said in a note to clients.

Volatility in the markets was directly linked to the escalating trade war between the USA and China. Japan remained the second-biggest holder, with $1.08 trillion in March, up from February's $1.07 trillion.

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On the other hand, Japan raised its Treasuries holdings to $1.078 trillion, the highest since November 2017, from $1.072 trillion in February.

They sold $12.53 billion in USA government debt in March after buying $19.91 billion the month before. Although USDCNH implied volatility has receded slightly from the knee-jerk high printed last week, the price action metric across various tenors remains elevated and could suggest that the US Dollar may continue climbing against the Chinese Yuan.

Official overseas selling of Treasuries coincided with a dollar rally in March spurred by safe-haven bids for the greenback amid worries about the global economy, trade tension and uncertainty around Brexit.

Overseas accounts also sold stocks for 11 straight months, reducing their equity stakes by $23.64 billion in March.

Aggregating net foreign acquisitions of long-term securities, short-term USA securities and banking flows, the result was a 8.1-billion-dollar net foreign outflow of US securities in March, the data showed.

China's decision to raise tariffs on USA goods made its impact felt on Wall Street as stock markets began the week on a downbeat note.

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