(Bloomberg) -- U.S. stock index futures swung between gains and losses as China’s currency policy took center stage in the ongoing trade war between the world’s two biggest economies.
S&P 500 Index futures sank as much as 1.9% in early Asia trading on Tuesday after the Trump administration formally labeled China a currency manipulator. The U.S. statement followed the Asian nation’s move to let its currency slide beyond 7 per dollar on Monday for the first time in more than a decade.
The U.S. stock futures jumped as much as 0.7% during the afternoon session after China took steps to stabilize the yuan with its daily fixing. S&P 500 contracts pared their gain later to 0.3%, with futures up 0.1% for the Dow Jones Industrial Average and 0.5% higher for the Nasdaq 100.
“As soon as 7 broke on the CNY, the obvious reaction by the Trump administration was to call China a currency manipulator,” said Nader Naeimi, AMP Capital’s head of dynamic markets in Sydney. “But I don’t know how you can call someone a currency manipulator when all they have done has been to keep the currency from depreciating.”
Naeimi said it’s possible that the market is in for a global stock selloff that’s as bad as the one seen during the fourth quarter of last year. “Seasonals are turning negative as well. We are seeing breakdowns across most market bellwethers across FX, equity and bond markets,” he said.
China’s announcement of the daily reference rate, which was stronger than the psychologically important 7 per dollar level, helped ease the turmoil in markets as the yuan gained. While S&P 500 Index futures erased losses and the yen retreated after climbing on haven demand earlier, the MSCI Asia Pacific Index was still down 0.9%.
“Apparently some expectations had been for an even higher fix, so some currencies seem to be responding to this as a positive development,” said Rob Carnell, head of Asia research for Asia Pacific at ING in Singapore.
The S&P 500 suffered its biggest rout of the year Monday and bonds rallied as investors fretted about the escalating trade war. More than $700 billion was wiped from the value of U.S. equities, with the S&P 500 Index plunging 3% and all but 11 companies on the gauge trading lower. The Cboe Volatility Index surged about 40%.
--With assistance from Hooyeon Kim.
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