US Stocks Fall as Trade Tensions Linger

US stocks traded in the red on Monday, as investors kept an eye on developments on trade, after US President Donald Trump announced the possibility of not implementing further tariffs on China.

The S&P 500 futures fell 0.4 percent to $2,731.25, while Dow futures dropped 0.3 percent to $25,369.0 and tech-heavy Nasdaq 100 futures slipped 0.6 percent to $6,852.75.

US-China Trade Tensions

Weakness in the major indexes came after Trump stated on Friday that his administration may not levy additional duties on more Chinese products after China presented a list of measures that it would be willing to carry out to help settle its trade dispute with the US.

Trump said it was unacceptable that major goods were omitted from the list of 142 goods, although he was confident the missing items would addressed in any deal reached with China. He did not detail the omitted items.

China’s document included 142 products divided into three categories, which included matters the country was prepared to discuss for further action, matters it was already tackling, and matters considered off limits.

Approximately $200 billion worth of Chinese items are due to rise to 25 percent from 10 percent of tariffs on January 1. Trump has warned about applying tariffs on all remaining Chinese imports – around $267 billion more in items – if Beijing fails to address US demands.

Trade tensions are in focus as the US and China prepare for a meeting between Trump and Chinese President Xi Jinping at the G20 summit in Argentina later this month.

However, tensions between the world’s two most powerful countries were evident during the Asia-Pacific Economic Cooperation (APEC) meeting in Papua New Guinea in the weekend, where 21 members have failed to see eye to eye on a communique for the first time in more than two decades.

The impasse was the result of the US and China’s differences on trade.

US Vice President Mike Pence stated that there would be no end to US tariffs on $250 billion of Chinese products until China changed its ways.

The comments from Trump were seen as offering a glimmer of hope that further tariff action could held in abeyance, according to Ray Attrill, head of FX strategy, adding that the exchange of barbs between Pence and Xi in Papua New Guinea on the weekend continues to suggest this is unlikely.

Fed Grows Concerned over Global Economy

Meanwhile, outlook for US interest rates have darkened as well. Federal Reserve policymakers are still signaling rate hikes ahead, but they also have grown worried over a potential global slowdown, prompting markets to assume that the cycle might not run much longer.

A major US investment bank expects US economic growth to slow towards the global average next year and the dollar to see a broad based fall as a result.

The bank said they see several changes to the global economic backdrop which, combined with a few negative medium-run factors, point to more downside than upside to the broad dollar in 2019.

Investors have already raised the likelihood on further rate increases, with a December move now priced at 73 percent, below the previous odds of more than 90 percent. Futures suggest rates around 2.74 percent for the end of 2018, compared to 2.93 percent in early November.

The US 10-year Treasury yields have declined 3.08 percent as expected, from a recent high of 3.25 percent.

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