- Futures for the S&P 500 and Nasdaq were down more than 1.4% Mon dya morning, following drops in Asia and Europe.
- It follows China allowing its renminbi currency to fall below the significant threshold of 7 to the US dollar.
- The shift will allow China to absorb economic pain from Trump’s trade war more easily — and suggests it is in for the long haul.
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US stocks are set to tumble as China’s central bank lowered its currency below a key threshold against the dollar on Monday, a first since the financial crash in 2008.
The move from Beijing, which has pegged its currency to the US dollar, is being seen as an attempt to fight back against Donald Trump’s tariffs in the trade war and ensure that there won’t be capital flight from China.
As of 10:00 a.m. in London (5:00 a.m. EST) US futures slid significantly, with S&P 500 (-1.4%) and the Nasdaq (-1.8%) both down.
"The timing of the move will spark speculation that this is being done intentionally as a counter-measure against US tariffs, which could cool relations further and make negotiations that much tougher," said Craig Erlam, Senior Market Analyst, UK & EMEA at OANDA. He added: "We now await Trump’s response, which I imagine will come via Twitter shortly."
In a statement, the People’s Bank of China blamed protectionism and tariffs on goods for the currency’s devaluation, but did not mention the US specifically. The PBOC did say that it "has the experience, confidence, and capacity to keep the renminbi exchange rate fundamentally stable at a reasonable and balanced level."
The Hang Seng index (-2.89%) led losses in Asia on rising concerns of Chinese military intervention in Hong Kong after protests continued.
Here’s a look at global stocks:
- US futures S&P 500 (-1.3%) and the Nasdaq (-1.6%) are both down.
- Asian stocks have plummeted on close: The Hang Seng (-2.8%) was down sharply, the Shanghai Composite (-1.62%) and the Nikkei 225 (-1.74%)
- Europe has had a poor start also with the DAX down (-1.5%) and Euro Stoxx 50 (-1.7%)
Previous to this, during trade talks the currency has declined, but not past the RMB 7-per-dollar threshold.
According to the Financial Times, the pattern of devaluation and increasing the value of the yuan to the dollar moved whichever way talks were going. Now with an extra 10% of tariffs, China has slid past the RMB 7 for the first time since 2008, looking to counter the effects last week’s additional tariffs.
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