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Stock market slumps again on trade war worries

By Masao Suzuki |
June 26, 2018
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San José, CA - U.S. stock markets fell again, June 25, as trade war worries continued to weigh on investors. The Dow Jones Industrial average fell 1.3% or more than 300 points, after regaining some ground from a 500 point sell-off earlier in the day. The NASDAQ index, which includes more stocks of high-tech companies, fell over 2%.

The only news over the weekend was that the Trump administration was going to limit the purchases of technology companies. When Secretary of Treasury Steve Mnuchin denied that the investment limit was aimed at China, stocks fell even further. They bounced back on the news that Trump’s trade representative Peter Navarro contradicted Mnuchin and said that only China is being targeted. This is just another example of deep divisions within the Trump administration over trade policy.

The report that China’s President Xi promised, in a meeting June 21 with major U.S. companies doing business in China, that China “would punch back” over U.S. trade tariffs gained more media coverage on Monday and may have helped to rattle the market. Other financial news that didn’t help the stock market was the flattening of the so-called ‘yield curve.’ The gap in interest rates on ten-year U.S. government bonds and shorter term bonds fell to the lowest level since 2007. If the gap turn negative (that is, if the interest rates on long-term bonds drops below that of short-term bonds) or what is called an ‘inverted yield curve’ is a very strong predictor of a recession in six months to two years.

At the time this article was written, stock markets across Asia continued the sell-off.