Small Market Jitters May Precede Bigger Calamities Based on U.S./China Trade Issues

Dow futures

As international markets continue to parse every little skirmish in a broader US/China trade conflict, Dow futures dropped over 250 points overnight, which many attribute to investors stressing over trade issues and the treatment of Chinese telecom firm Huawei in particular.

“Dow Jones Industrial Average futures dropped 253 points, indicating a loss of 251 points at the open,” write CNBC reporters Fred Imbert and Sam Meredith this morning. “S&P 500 futures fell 26 points while Nasdaq 100 futures declined 89 points.”

As characterization, the report cites remarks by JP Morgan exec Adam Crisafulli who reportedly wrote the following in a market note:

“The trade landscape looks bleaker than ever … Anyone bullish on the SPX has to be conducting a lot of soul searching at the moment.”

“Wall Street is set to open in the red this morning,” reports Dominic Chu in this morning’s CNBC Pre-markets Rundown, “as worries over a prolonged trade war between the U.S. and China continue to hang over the markets.

This morning also brings verification that British chip designer ARM is suspending operations with Huawei because of the United States mandate that companies disentangle themselves from the company over the next 90 days.

Another driver of this tension is Chinese remarks responding to U.S. trade activity.

“China urges the U.S. to stop the wrongdoings to avoid the further impact on the China-US trade relations,” said China’s Ministry of Commerce spokesperson Gao Feng, commenting on trade activity in recent days, according to reporting from Chris Isidore at CNN Business. “China will take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises. … If the US would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.”

One potential wrinkle in a U.S. retaliatory position vis a vis China regards the holding of U.S. treasuries by the world power and China’s “nuclear option” of disengaging with T-notes, which some analysts claim would be a “last resort” but which the Chinese top brass generally have the ability to do.

“Massive amounts of continuous selling of US debt will raise suspicion among professional traders that there is a major seller in the market, which could be China,” said Jasper Lo, chief investment strategies at Eddid Securities and Futures, according to the South China Morning Post. “That could quickly spillover worries of the value of US dollar treasuries and assets, and cause global financial market turmoil.”

Investors: consider yourselves warned.