US pre-open: Heavy losses seen as US-China relations deteriorate further
US futures pointed to heavy losses on Wall Street on Tuesday as relations between the US and China took another turn for the worse.
At 1240 BST, Dow Jones Industrial Average futures were down 1.5%, while S&P 500 and Nasdaq futures were 1.2% lower.
On Monday, US President Donald Trump instructed his country's trade representative to identify a new $200bn-worth of goods on which to levy 10% tariffs. He also called for a separate list to be prepared detailing a further $200bn-worth of Chinese goods that could be targeted if Beijing responded with countermeasures of its own.
The moves overnight followed Beijing's decision to retaliate for the duties on $50bn worth of Chinese goods that Washington had announced last week.
China's Ministry of Commerce responded immediately on Tuesday morning, describing the move as "extreme pressure and blackmail".
Trump said in his statement that by retaliating with its own tariffs rather than altering its practices, China was "threatening US companies, workers, and farmers who have done nothing wrong".
To make matter worse, the US Senate also passed an amendment to the Defence Bill 85-10 that includes a measure to kill the recent deal Trump made to save Chinese technology company ZTE. The House of Representatives still needs to pass the amendment.
Oanda analyst Craig Erlam said: "With China showing no desire to be bullied into submission, with its Commerce Ministry promising to retaliate to any new tariffs and its Foreign Ministry reaffirming that while it doesn’t want a trade war, it’s not afraid to engage in one, it’s difficult to see how and when this ends. Moreover, it’s difficult to fully grasp just how much damage will be done in the process, particularly with the European Union also drawing up counter-tariffs against the US.
"The clear escalation that’s occurred in recent days has shaken investors and appears to brought an end to the good run that US stock markets had been on since the start of May. While Chinese stocks are faring much worse at the moment, US companies are obviously not immune to a trade war and could come under more pressure unless both sides find a solution.
"We’re seeing plenty of risk aversion in the markets in response to the tariffs although interestingly gold is not seeing the usual safe haven gains as a stronger dollar is weighing on demand for the yellow metal. The dollar appears to be benefiting from a combination of safe haven Treasury demand which has driven the 10-year yield back below 2.9% and weakness in the euro and the pound."
In corporate news, electric car maker Tesla was weaker in pre-market trade following a report that chief executive Elon Musk said an employee had attempted to sabotage the company in an email sent to employees on Sunday night.
Elsewhere, Foundation Medicine was likely to be in focus after Switzerland's Roche said it will buy the remaining shares in the company it does not already own in a $2.4bn deal.
On the data front, housing starts and building permits for May are at 1330 BST.