Stocks fell hard out of the gate as a flight to safety sent US treasury bonds, gold and utility stocks higher while export driven stocks were whacked. The early morning selloff was not accompanied by a late day rally however and at the close the Dow was off 617 points at 25,324. Stocks are now off about 5% from the recent highs. Trading volume was down slightly which was a surprise given the magnitude of the drop.
The US increased tariffs on $200 billion of Chinese goods on Friday and China responded by upping tariffs on $60 billion of US goods effective June 1st. China also hinted it would consider additional measures such as a halt in purchases of US farm products like they did with Canadian pork producers. China also owns $1.2 trillion in US Treasury bonds and they could decide to use these in some form. The US imports over $559 billion in goods from China (4.5% of their economy) while China imports $180 billion from the US (0.9% of our economy). Should the tariffs remain in place we could see a shift of global manufacturing from China back to the US or to other countries that would be exempt from the tariffs. US farmers stand to bear the brunt of the tariffs, but the status quo of theft of US technology seems to have reached a boiling point.
Bitcoin and crypto currency in general were up big today and over the past month have been moving steadily higher. The reasons behind the move could be related to several things. One is a company called Flexa which today announced a phone payment app allowing you to use Bitcoin on any current payment scanning app at any store which means you can now buy a cup of coffee at Starbucks or a banana at Whole Foods with Bitcoin. Another compelling reason might be related to the trade dispute between China and the US since Bitcoin could help global businesses transfer wealth between markets and different currencies without much interference. Time will tell how this plays out, but the recent rise of Bitcoin has coincided with rising trade tensions and tariffs indicating that Bitcoin might be an asymmetric way to counter financial trade risks.