US Market falls as US-China trade tensions escalates

The US stock market finished session lower on Tuesday, 08 October 2019, as risk sentiments deteriorated after a fresh flare-up in tensions between Washington and Beijing after the U.S. State Department said it is imposing visa restrictions on Chinese officials for treatment of Muslims in Xinjiang. Market losses were, however, capped on increasing market expectations that the Fed will cut interest rates by a quarter percentage point in October after Federal Reserve Chairman Jerome Powell comments. At closing bell, the Dow Jones Industrial Average retreated 313.98 points, or 1.2%, to 26,164.04, while the S&P 500 index gave up 45.73 points, or 1.6%, to 2,893.06. The Nasdaq Composite Index retreated 132.52 points, or 1.7%, to finish at 7,865.

The Trump administration's latest moves against China raised doubts that U.S.-China trade talks set to begin Thursday will be successful. The U.S. expanded its trade blacklist to include some of China's top artificial intelligence firms on Monday, because of their alleged role in human-rights violations against the Uighur Muslim minority. Also weighing on stocks was a statement by the State Department saying that the U.S. would impose a visa ban on Chinese officials linked to the Muslim abuses.

Market participants remained focused on the resumption of trade talks in Washington D.C. between the U.S. and China with import tariffs set for $250 billion worth of Chinese goods at a rate of 30% from Oct. 15.

The world's two largest economies have imposed tariffs on billions of dollars' worth of one another's goods since the start of 2018, battering financial markets and souring business and consumer sentiment.

Market expectations have increased that the Fed will cut interest rates by a quarter percentage point in October after Federal Reserve Chairman Jerome Powell suggested openness to further rate cuts and said the time has come to allow the Fed's asset holdings to begin to expand again. Powell also said the Fed would "soon announce measures to add to the supply of reserves over time."

On the data front, U.S. producer prices posted 0.3% decline in September, registering a biggest drop in eight months, dragged down by lower costs for goods and services, the Labor Department said in a monthly report on Tuesday. The index gained 0.1 percent in August. Producer prices are an indicator of inflation and a decline could give the Federal Reserve more room to ease monetary policy.

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