The main reason is the concern that the two countries have moved away from each other with the latest steps in trade issues. "People are worried that this has made it much harder to reach a trade agreement," said Robert Pavlik, chief investment strategist for asset manager SlateStone Wealth LLC of New York.
Optimism on the stock markets since the beginning of the year has so far been fueled not only by the strong US economy, but also by the firm conviction that Trump can still negotiate a deal with China. But hopes are dwindling now.
The devaluation of the Chinese currency in particular worried investors. For the first time in more than eleven years, the dollar jumped above the seven yuan mark. Analysts fear that this could open a new front in the trade dispute and lead to a currency war. Trump has already spoken in a tweet of "currency manipulation" and a "grave breach" that will hurt China long-term.
The US government relented in the evening. According to the Ministry of Finance, China has been branded as a country manipulating its currency to gain unfair advantage in international competition. US Treasury Secretary Steven Mnuchin will launch talks with the International Monetary Fund to eradicate China's unfair competitive advantage, the Ministry of Finance said.
The yuan may only move in daily terms set by the central bank. The Chinese central bank has so far prevented a weaker yuan so as not to jeopardize negotiations with the US, said Julian Evans-Pritchard, China economist at the analysis firm Capital Economics.
"The fact that they have now stopped defending the $ 7 mark against the dollar suggests that they have given up any hope of a trade agreement with the US," says Evans-Pritchard. If there is a true trade war, then it could also drive the US economy into recession, many investors are convinced.
However, it is still not so far and the recent price losses, the US indices are still able to cope well. Even after the sharp slumps on Friday and Monday, US stock prices are still close to their record levels: the S & P 500 was still eleven percent higher than the beginning of the year, and the Nasdaq even 15 percent.
"So far, we're sticking with our macro expectations," say Brown Brothers Harriman & Co. analysts. These include a lack of US recession, a strong dollar, and higher stock prices. But with recent news from the trade dispute "all these assumptions will be tested time and again this year". In addition, they expect market volatility in the coming months to increase.
Above all, the technology companies have to adjust to troubled times: the chip manufacturers Advanced Micro Devices, Nvidia. Micron Technologies and Intel already clearly lost on Monday at the stock exchange.
More: The slide in the Chinese currency Yuan has scared investors on Wall Street. The US stock indices fell sharply against the start of the week.