Spooked by concerns over trade, geopolitical tensions and the possibility of recession, stockmarkets had their worst day of the year so far. The s&p 500, Dow Jones Industrial Average and NASDAQ indices all fell by 3% in a day. In Europe the DAX was down by 2.2% and the FTSE 100 by 1.4%. Investors were particularly concerned by the yield on long-term American government bonds falling below that on short-term bonds for the first time since 2007. Such a yield-curve inversion is usually seen as a harbinger of a downturn.
Also weighing on markets was news that Germany’s GDP shrank by 0.1% in the second quarter compared with the previous three months, underlining the recent fall in German exports and industrial output. Britain’s economy also shrank in the second quarter, by 0.2%, the first contraction of British GDP since the end of 2012.
Meanwhile, the growth rate of Chinese industrial output slowed to 4.8% in July compared with the same month last year. That was the slowest pace in more than 17 years and more evidence of the chilling effects of the trade war on the Chinese economy.
Earlier in the week, despondent markets had lifted when the Trump administration said it would postpone a 10% tariff on some Chinese imports until December 15th. The list of goods includes smartphones, laptops, video-game consoles and toys, which Donald Trump suggested would benefit shoppers in the run-up to Christmas. The delay applies to two-thirds of the products subjected to this particular levy. A 10% tariff will be collected on the other Chinese goods from September 1st.
South Korea removed Japan from its list of trusted trading partners, escalating a trade dispute between the pair (Japan dropped South Korea’s preferential trading status earlier this month). Trade between the two countries will now have to go through more red tape.
Saudi Aramco, Saudi Arabia’s state oil company, is to take a 20% stake in the refining and chemicals assets owned by Reliance Industries, an Indian conglomerate. The deal, which is still being negotiated, deepens existing ties between the companies and will be one of the biggest foreign investments in India to date.