Asian stocks followed Wall Street lower on Tuesday after China let its currency sink and halted purchases of U.S. farm goods, fueling fears that Beijing’s trade war with President Donald Trump will harm the global economy.
China’s main index lost 1.5% and Australia’s was down 2.3%. Markets in Tokyo, Hong Kong and Seoul also retreated.
Beijing allowed its yuan to fall past the politically sensitive level of seven to the dollar on Monday following Trump’s threat last week to extend punitive tariffs to an additional $300 billion of Chinese imports. The Ministry of Commerce announced it was suspending promised purchases of American farm products.
On Tuesday, the yuan fell farther to 7.052 to the dollar in early trading. That came after the U.S. Treasury Department officially labeled Beijing a currency manipulator, a status that opens the way to possible additional sanctions.
“Equities are slumping. They will slump more. Bond yields are tumbling. They will tumble far more,” said Rabobank’s Michael Every in a report.
“Worry about global trade flows, as a stronger USD rumbles through the real economy and U.S.-China divorce smashes supply chains,” the bank said.
The Shanghai Composite Index fell to 2,780.93 and Tokyo’s Nikkei 225 retreated to 20,577.63. Hong Kong’s Hang Seng gave up 0.7% to 25,971.55 and South Korea’s Kospi shed 1.1% to 1,926.30.
Sydney’s S&P-ASX 200 retreated to 6,485.40 while India’s Sensex gained 0.2% to 36,787.18. Markets in Taiwan, New Zealand and Southeast Asia also declined.
Wall Street suffered its biggest loss since December. Investors already were unnerved about a cooling global economy and falling U.S. corporate profits.
Standard & Poor’s 500 index dropped 3% to 2,844.74. The Dow Jones Industrial Average lost 2.9% to 25,717.74, and the Nasdaq composite fell 3.5% to 7,726.04.
The sell-off began in Asia, where indexes lost more than 1%, and intensified as it swept westward through Europe to the Americas. Investors in search of safety herded into U.S. government bonds, which sent yields plunging.
The yield on the 10-year Treasury note fell to its lowest level since 2016, down to 1.72% from 1.85% late Friday. The yield on the two-year note sank to 1.58% from 1.71%. Both are unusually large moves.
Technology stocks bore the brunt of Monday’s selling. Apple slid 5.2%. It not only depends on Chinese factories to assemble its iPhones, but China is also the only country aside from the United States that accounts for more than 10% of its sales.