The Dow Jones Industrial Average plunged by more than 700 points as the US-China trade war intensified with China retaliating against USA President Donald Trump’s latest move yesterday. Gold prices jumped by more than one percent to hit their highest level in more than six years, while the Japanese yen and core government bonds also increased. The news pushed the S&P 500 to its worst weekly performance of the year dropping 3.1 percent last week with the Dow seeing its second largest weekly fall of 2019 last week at 2.6 percent.
Global growth concerns have risen as the trade war between the world’s two biggest economies the US and China sparked a stampede into perceived “safe-haven” assets.
Gold prices soared by more than one percent hitting their highest level in more than six years.
The CBOE volatility index, known commonly as the VIX or Wall Street’s “fear gauge”, hit its highest level since mid-May, while Europe’s equivalent reached its highest point since early January.
At times of market volatility and turbulence, investors typically flock to assets which are expected to either retail or increase in value.
These “safe haven” assets tend to include gold, the Japanese yen, government bonds, defensive stocks and cash.
Investors flee to buy these assets as they are believed to limit their exposure to losses in the event of a sharp market downturn.
Dow Jones prices nosedived at a time of heightened volatility in the financial markets with the pan-European Stoxx 600 falling by almost 2 percent – on top of a 2.5 percent drop seen on Friday, the worst performing day for it in 2019.
The S&P 500 dropped 2.9 percent which means it is headed for a six-day losing streak and potentially its worst day of the year.
The Nasdaq Composite also lagged, falling by 3.4 percent meaning it is on track to fall for a sixth straight session, which would be its longest losing streak since late 2016.
The major indexes have also fallen more than 5 percent from their record highs set last month.
Trade bellwethers Caterpillar and Boeing dropped 3 percent and 2.3 percent, respectively, while semiconductor stocks like Micron Technology, Skyworks Solutions and Advanced Micro Devices fell by at least 4 percent.
In a research note from deVere Group international investment strategist Tom Elliott said: “Global stock markets have panicked.”
Meanwhile Beijing appeared to be prepared to tolerate more currency weakness that could further distress the trade conflict with Washington after China allowed the yuan breach the key 7-per-dollar level for the first time in more than a decade today.
Mr Elliott said: “The nervousness in financial markets over the falling renminbi (yuan) in recent weeks has reached panic levels.”
He added: “Just as in July and August 2015, when China engineered a small devaluation to support growth, global stock markets have panicked.”
Markets have been turbulent and confidence spooked since Mr Trump announced his plan to impose a 10 percent tariff on $300 billion worth in Chinese imports last week effective from September 1, ending a month-long trade truce.
However, despite Mr Trump’s intention, on Friday, China vowed to fight back.
Spot gold rose 1.4 percent to trade at $1,460.11 (£1201.67) per ounce at around 8:15 am ET (1.15pm BST) which marked its highest level since May 2013.
At the same time, the onshore Chinese yuan changed hands at 7.0304 against the dollar on Monday, while the offshore yuan traded at 7.0807 against the greenback.
According to Reuters the last time the Chinese currency breached the 7 level against the dollar was during the global financial crisis in 2008 – indicating the level of fear and lack of confidence in the current market.
The Japanese Yen is often purchased in times of risk aversion and Monday was no exception.
It rose by 0.7 percent to its highest since a January flash crash with the currency up 0.5 percent at 106.04, after hitting 105.78 earlier in the session.
Meanwhile, the Swiss franc, another safe-haven currency, rose by 0.4 percent to 1.0864 francs against the euro marking a 25-month high.
At the time of writing, Dow Jones has now increased by 125 points.