This article was originally published on ETFTrends.com.
U.S. markets and stock ETFs rebounded Tuesday after experiencing their worst one-day decline of the year on growing fears of the escalation in the U.S.-China trade war.
Major U.S. benchmarks plunged at least 3% on Monday after China allowed its yuan currency to break above a key 7 per dollar level, its weakest level in 11 years, in response to President Donald Trump's threat of an additional 10% tariffs on the rest of the $300 billion in Chinese imports starting September 1. Beijing's latest move also prompted the U.S. Treasury Department to label China as a currency manipulator on the world stage, bringing the ongoing trade war to a whole new level.
However, China's decision to fix the yuan at a slightly stronger rate overnight assuaged traders of a further escalation between the U.S., bolstering risk-on confidence on Tuesday. The Chinese central bank announced plans to release bills worth 30 billion yuan next week, which helped the yuan strengthen against the U.S. dollar after the announcement.
“The fact that China stabilized its currency gives investors some hope that this won’t accelerate into a bigger problem,” Rick Meckler, partner at Cherry Lane Investments, a family investment office, told Reuters. “Any positive response by either side that suggests some willingness to negotiate is really going to be taken well by investors.”
The previous trade-induced risk-off selling also waned after White House economic adviser Larry Kudlow signaled that Trump will host a Chinese delegation for further talks in September.
"Also supporting the markets is probably bargain hunting of companies with good fundamentals and short-covering elsewhere," Forex.com technical analyst Fawad Razaqzada said in a note, according to CNN.
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