President Donald Trump issued another threat to hike tariffs on Chinese goods if Beijing does not agree to a trade deal Image Credit: Bloomberg

Dubai: Global stock markets fell on Wednesday as the world’s top two economies were at each other’s throats again, quashing hopes that both countries were close to ending an 18-month trade dispute.

The US Senate on Tuesday passed a bill across in support of anti-government protesters in Hong Kong, spurring China to repeat its threat to retaliate. Also, President Donald Trump issued another threat to hike tariffs on Chinese goods if Beijing does not agree to a trade deal.

Wall Street indices slipped at open, with Dow Jones, S&P 500 and Nasdaq opening 0.2-0.3 per cent in the red.

European stocks tumbled half a percent and fell to their lowest levels in more than two weeks, after having recently hit four-year highs. Shanghai Composite Index closed down nearly a per cent.

Beijing and Washington have been in talks to get an initial deal signed to end a trade clash that has disrupted supply chains and hurt global markets. Markets turned hopeful the last few weeks on commentary from top government officials that the two sides were close to a deal, but those expectations were dampened on Wednesday and triggered a market wide sell-off. The Senate bill, which warned against the use of force to suppress the demonstrations in the Chinese territory, prompted China to warn of “unspecified retaliation” if the bill became law.

“The bill marks a new turn in China-US relationship and it complicates an already tough trade negotiation between the two countries,” said Vijay Valecha, Chief Investment Officer at Century Financial. “The statements from both sides sound hawkish and could lead to more volatility in the markets.”

Hu Xijin, editor-in-chief of Global Times, a widely read tabloid run by the ruling Communist Party’s mouthpiece People’s Daily, suggested that an imminent resolution between the countries now looked unlikely.

“Few Chinese believe that China and the US can reach a deal soon and people tend to believe the significance of a trade deal, if reached, will be limited,” Xijin tweeted. “China wants a deal but is prepared for the worst-case scenario, a prolonged trade war,” Xijin added.

The news fuelled a bid for bonds and other safe-haven assets such as gold.

However, the volatility in the markets could be a passing phase and they are likely to again bounce back on positive news regarding the trade agreement, Valecha said.

“Markets will look for real developments and from that aspect, there seems to be progress in the trade talks,” Valecha added, adding that recent optimistic comments from U.S. government officials hinted that a major part of the negotiations were over.