Market turmoil hit a new depth Monday as the S&P 500 opened significantly lower, recording the largest daily drop so far in 2019. But as the week progressed, the S&P 500 managed to slowly work back most of the losses.
Markets opened substantially lower on Monday on the news that China was instating a ban on the import of US agricultural goods. This move was seen by many analysts as a way for China to put additional economic pressure on the United States and President Trump specifically, in the year leading up to the next presidential election. The ban of US agricultural imports puts added focus on the Midwest, a segment of the country that has been viewed as ardent supporters of President Trump during the last election cycle.
Additionally, China took steps to devalue their own currency to better position themselves in a trade war. On Monday, the Yuan in US Dollars hit the lowest level since 2008. Unlike other currencies that can trade feely on the open market, China limits the movement of its yuan versus the dollar.
The benefit to China in lowering their currency’s value is that it reduces the impact of a US tariff. By nature, tariffs make Chinese goods more expensive in the domestic market and thus less competitive. When China made the conscience decision to adjust its currency’s value relative to the dollar, it diminished the effects of the tariffs.
Because of this action, the Treasury labeled China a currency manipulator. Secretary Steven Mnuchin said that they will “engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions”
This event marks the first time in since the 1990s that a country has been labeled a currency manipulator. Furthermore, it was China who in the 1990s earned that distinction.
In the end, the geopolitical turmoil caused the treasury market to drop, sending yields much lower for the week.
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