Market Extra: Stock market sees China tariffs as a ‘buzzkill’ and falling…

Market Extra: Stock market sees China tariffs as a ‘buzzkill’ and falling…

Stock market sees China tariffs as a ‘buzzkill’ and falling as if a genuine trade war just erupted

Has a tit-for-tat tariff spat between China and the U.S. shifted from a skirmish to a full-blown trade war?

That is certainly how financial markets have been trading on Friday after President Donald Trump earlier in the day announced tariffs on $50 billion worth of Chinese imports and Beijing’s Commerce Ministry said it would immediately launch tariffs on U.S. goods in “equal scale and equal strength.”

Wall Street didn’t like the escalation of tensions that appeared to some as if the rhetoric between the world’s largest economic powers had devolved into a more concrete dispute that could ripple through global economies. The Dow Jones Industrial Average DJIA, -0.82% tumbled more than 200 points.

“Now, we are in an official trade war with China,” said Peter Boockvar, chief investment officer at wealth manager Bleakley Financial Group. Boockvar described the tariffs as a “buzzkill” for the markets after a string of upbeat economic reports that ought to provide support to prices rising.

Indeed, the Empire State manufacturing survey for May rose to the highest reading since October, while University of Michigan’s gauge of consumer sentiment rose to 99.3 in June, underscoring growing confidence in the economy with the unemployment rate at an 18-year low.

Boockvar said tariffs were “a confluence of headwinds to offset the tailwinds of an economy that’s good.” He said he’d prefer to refer to as a tariff reality rather than a trade war.

In any case, the threat of tariffs has been a major bugaboo for investors because it introduces an element of uncertainty that typically rattles investors. It also can dent economic expansion, even if Friday’s levies were relatively tiny in the scheme of the economic powers at loggerheads.

Moreover, Friday’s action comes less than a week after the Group of Seven world leaders meeting ended with Trump declining to sign a joint communiqué, citing what the president viewed as an act of bad faith by Canadian Prime Minister Justin Trudeau.

However, the anxieties hitting the stock market didn’t benefit gold futures, which tends to rise amid global uncertainty. Gold futures GCQ8, -2.23% were tanking, down $25.90, or 2%, at $1,282.30 an ounce, and on track for its lowest settlement of the year. That reversal comes a day after the yellow metal booked its highest finish in a month after the European Central Bank emphasized a gradual path was being taken as it moves toward eventually lifting its benchmark rates next year.

The action in gold was perplexing to most gold bugs, though it came as industrial metals, like copper, the most sensitive to trade disputes, were getting hammered. Copper for July delivery HGN8, -2.44% on Comex was down 8 cents, or 2.4%, at $3.15 a pound, on track for its steepest decline since January, according to FactSet data.

Ira Epstein, managing director at commodities broker Linn Group: “‘You’re in a trade war’, that’s what I’ve been telling clients,” he told MarketWatch. He couldn’t immediately explain the drop in gold, however, but expected that it would soon start to draw some bidders as it retreats.

Mark DeCambre

Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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