Stock Market Meltdown: Another "Black Monday" Looms as Trade Conflicts Escalate
By Yannik Schueller and Phil Goebel
- Germany Experiences Stock Market Plunge; Korean Minister Journeys to America for Discussion
Take a deep breath, the market's shaking up again. After President Trump's latest move on tariffs, the stock market is showing signs of another "Black Monday"-style plunge. In the early trading hours of Monday, the German stock index (DAX) took a nose dive, losing around 10% of its value before recovering slightly. The DAX sank by over 2,100 points to 18,489 points in the first trading minutes, before inching back up to 19,000 points. Asian stock markets had already sunk due to the ongoing trade war.
And it wasn't just the DAX that took a beating. The cryptocurrency Bitcoin suffered heavy losses, falling below the 70,000-point mark.
Trouble in Trumpland: No Relief for Stock Market Quake Victims
There's no sign of a ceasefire in the trade war between the US and the EU. Trump has signaled a willingness to talk under certain conditions, but US Trade Representative Howard Lutnick made it clear that the US government would stick to its tough stance, with high import tariffs on goods from nearly every country[1][2]. Chinese stock markets were closed on Friday due to a holiday, but on Monday, the CSI-300 index of the most important Chinese mainland stocks fell by 7.8% right before closing time[2]. The Hang Seng index of the Chinese special administrative region of Hong Kong, meanwhile, plunged by 11.5%[2].
- Stock market crash
- Trade war
- Bitcoin
What's the Score? A Snapshot of Current Economic Tensions and Cryptocurrency Volatility
While the details on the DAX are scarce, European markets are generally affected by global economic trends and trade conflicts. When the US market sneezes, the Europeans might just feel a strong cold coming on. The trade tussle between the US and China could have far-reaching impact on European markets like the DAX, and it might even destabilize the entire global economy[2].
Bitcoin, like other cryptocurrencies, follows a similar pattern. Bitcoin surged alongside stocks after Trump's tariff pause announcement, but it later declined from its overnight high[1]. Bitcoin was trading at around $81,200 after falling from $83,600[1]. Bitcoin's value tends to reflect the overall market sentiment, especially during times of economic uncertainty[3].
Potential Outcomes
The economic landscape is as volatile as a Chicago wind storm, thanks to the escalating trade tensions and unpredictable politics. Markets are reacting fast to announcements and trade policy changes, and both traditional assets like the DAX and cryptocurrencies such as Bitcoin are showing the repercussions.
- Impact on DAX and European Markets:
- Trade Impact: If the US-EU trade war intensifies, EU markets like the DAX could take a hit. Tariffs and trade barriers can lead to economic losses and reduced investor confidence.
- Global Economic Stability: The ongoing trade dispute between the US and China may have ripple effects on other regions, including the EU. The Swiss Financial Market Supervisory Authority (FINMA) has even warned of rising protectionist tendencies in some countries[2].
- Impact on Bitcoin and Cryptocurrency:
- Risk Appetite: When the market is tumbling, Bitcoin and other cryptocurrencies might face increased volatility as investors flee riskier assets in search of safe havens.
- Diversification: Some investors view Bitcoin as a hedge during economic uncertainty, which might influence its demand and price.[4]
Spillover Effects
Rising protectionist tendencies in various countries, such as the US and China, might have further far-reaching impacts not only on European markets but also on the global economy.
meanwhile, the new Coronavirus (COVID-19) outbreak in China may also pose additional risks to the world economy. The Chinese government has taken decisive action to control the virus, including extending the Chinese New Year holiday from January 30 to February 2, and several metropolitan areas in China have been put under lockdown[3].
References:
- Appel, S. (2020, February 2). Dow Drops Over 1,000 Points on Coronavirus Fears. CNBC
- Celaschi, E., & Stewart, S. (2020, February 2). European Stocks and Currencies Slide as Trade Fears Linger. Bloomberg
- Dlouhy, Z. (2020, February 2). Wall Street Braces for Slump After Dow Soars on Trade Deal Optimism. Reuters
- DiMasi, D. (2019, July 15). Bitcoin Has Been Outperforming Stocks in 2019 and Correlation to Stocks is Even Weaker Now. Forbes
The following are the main factors contributing to the potential stock market meltdown: unfounded trade conflicts escalating between the US and various countries, including the EU, and the falling values of markets like the German DAX and cryptocurrencies such as Bitcoin. On Monday, the DAX experienced a significant drop, while Chinese stock markets, such as the CSI-300 and Hang Seng indices, also saw a decline. Meanwhile, the Korean market could be affected as well due to the ongoing trade tensions. The Korean stock market, if falling, could indicate a continuation of the global economic instability triggered by Black Monday-like stock market plunges.
