(CNN) — The Dow was set to fall more than 300 points Monday morning after China escalated the trade war with the United States.
The Chinese government devalued the yuan to fall below its 7-to-1 ratio with the US dollar for the first time in a decade Monday. A weaker currency could soften the blow the United States has dealt China with its tariffs.
The cheaper yuan ignited fear on Wall Street that the United States would respond with even higher tariffs, prolonging the standoff with China and potentially weakening the global economy. Investors are particularly concerned that the Trump administration could try to devalue the dollar, sparking a currency war that could weaken Americans’ purchasing power.
“Risks of Trump intervening in foreign exchange markets have increased with China letting the yuan go,” wrote Viraj Patel, FX and global macro strategist at Arkera, on Twitter. “If this was an all out currency war – the US would hands down lose. Beijing [is] far more advanced in playing the currency game [and has] bigger firepower.”
President Donald Trump once again called China a currency manipulator on Monday, calling it a “major violation.” Trump has long been calling China out for its currency management, even though the Treasury has refrained from officially labeling the country as such.
Stock futures are sharply in the red because of the trade escalation, adding onto losses after the S&P 500 and the Nasdaq Composite logged their worst week of the year last week.
Dow futures are down 1.4%, or 354 points, while S&P 500 futures are down 1.4%.
Hit particularly hard were tech stocks. Facebook, Apple, Amazon, Netflix and Alphabet were all down more than 2%. Nasdaq Composite futures, which are a kind of proxy for the tech industry, fell 1.9%.
The VIX volatility index soared 20%. The CNN Business Fear & Greed Index is indicating Fear.
Asian markets all fell more than 1.6% Monday, and Hong Kong’s Hang Seng dropped 2.9% as protests continue in the region. In Europe, London’s FTSE 100 declined more than 2%. Germany’s DAX and France’ Cac 40 are both down more than 1%.
The yuan weakened sharply after the People’s Bank of China set its daily reference rate for the currency at 6.9225, the lowest rate since December. The central bank said in a statement that Monday’s weakness was mostly because of “trade protectionism and new tariffs on China.” President Donald Trump threatened a new round of tariffs on the country last week.
Devaluing the yuan is one way China has of retaliating against the tariffs. A weaker currency helps Chinese manufacturers offset the costs of higher tariffs.
Analysts at Capital Economics said the move showed that Beijing has “all but abandoned” hopes for a trade deal with the United States.
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