U.S. stock futures tumble after Trump threatens China with steeper tariffs

(Reuters) – Wall Street stock index futures fell sharply on Sunday after U.S. President Donald Trump said he would hike U.S. tariffs on $200 billion worth of Chinese goods this week and soon target hundreds of billions more.

Trump’s announcement came ahead of another round of talks between U.S. and Chinese officials in Washington scheduled for this week. White House officials were unaware on Sunday afternoon if Trump’s tweet would affect those talks. The Chinese delegation could decide not to come because of what is likely to be seen as an escalation by the president.

Investors were taking risk off the table on concerns that Trump’s threat would halt progress in talks between the world’s biggest economies, especially since some recent gains in U.S. equities were due to optimism they would reach a deal.

“It’s obviously not good news for the market. The administration had sent signals an agreement was close before. This causes us to question how close we are,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

While S&P futures eased their losses they were still down on as the evening wore on.

After falling as much as 1.8%, S&P 500 e-minis were down 40 points, or 1.36%, with 93,139 contracts changing hands. Nasdaq 100 e-minis were down 119 points, or 1.51%, in volume of 21,736 contracts and Dow e-minis were down 358 points, or 1.35%, with 14,154 contracts changing hands.

Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut said investors may not panic completely yet as they could see Trump’s comments as a negotiating tactic.

“I wouldn’t be surprised if we catch a bounce between now and tomorrow morning. With the president it could be a negotiating tactic,” said O’Rourke.

If this week’s scheduled meetings were canceled, pressure on equities could ramp up, he said.

“The next important thing is the reaction from China. Should China cancel the trip that becomes a bigger problem. People came into this weekend expecting there was a good chance we’d have a trade deal next Friday,” said O’Rourke.

“A deal with China has already been essentially priced in, if not fully. A large portion of the market will give the situation the benefit of the doubt to see what China’s reaction is. If China reacts in a negative way and it turns out to be an escalation the market would see further headwinds.”

The S&P 500 has gained 17.5% so far this year partly due to a decision by the U.S. Federal Reserve to put rate hikes on hold but also due to hopes for a China deal.

“I do think it’s hard for the market to go higher from here without a resolution,” said Cherry Lane’s Meckler.