FTSE 100 drops as U.S.-China trade fight intensifies

U.K. stocks dropped Tuesday, with trade tensions between the world��s two largest economies escalating after U.S. President Donald Trump ordered his administration to look for further tariffs on $200 billion in imported goods from China.

How markets are moving

The FTSE 100 index UKX, -0.53% �lost 0.8% to 7,573.72, on track for a third straight decline. The basic materials group fell by the most, and the consumer goods group was the only sector to advance. On Monday, the London benchmark slipped less than 0.1%.

The pound GBPUSD, -0.5436% �slipped to $1.3188, breaking below $1.3200 for the first time since November 2017, according to FactSet data. Sterling traded at $1.3245 late Monday in New York.

What��s driving markets

Stocks in the U.K. and the broader European equity market SXXP, -0.77% � moved sharply lower after Asian equities sold off. The Shanghai Composite SHCOMP, -3.78% �slid 3.8%, and the Shenzhen index 399106, -5.77% � tanked 5.8% in Asian trade, with losses coming after Trump threatened more tariffs on more Chinese goods. U.S. stock futures YMU8, -1.41% ESU8, -1.14% � were under heavy pressure before Wall Street��s open, with Dow futures down more than 350 points.

��Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship,�� Trump said in a statement late Monday.

Beijing, meanwhile, is threatening to impose tariffs on another batch of U.S. products if the Trump administration follows through with a second round of levies, state-run Xinhua News Agency reported.

China had previously announced plans for retaliatory tariffs on U.S. goods worth $34 billion, including soybeans, whiskey and electric cars.

What are strategists saying?

��So far the trade war has been confined to trade. The fear, however, is that it may spill over into the financial world. Specifically, China could start selling off some of its massive holdings of Treasury bonds. The country owns some $1.18 trillion of Treasuries, or 30% of all foreign official holdings of Treasuries, which is not to mention their holdings of agency bonds and others,�� said Marshall Gittler, chief strategist at ACLS Global, in a note.

��Of course, to some degree it would be shooting themselves in the foot to sell these bonds aggressively, because once the market realized what was happening, bond prices would plunge. However, U.S. mortgage rates would soar as a result, and China might feel the pain was worth it to make middle-class U.S. voters sit up and take notice,�� Gittler said.

Read: Trump��s constant threats, reversals spur investors to see him as the boy who cried ��Wolf!��

Stock movers

Mining stocks were dragged lower, as analysts have said a trade war could lead to reduced demand for industrial and precious metals, and China is the world��s largest buyer of copper.

Shares of copper producer Antofagasta PLC ANTO, -1.62% �fell 1.8%, iron ore producers BHP Billiton PLC BLT, -2.66% �and Rio Tinto PLC RIO, -2.98% �shed 2.8% and 2.5%, respectively.

Mining stocks make up 87% of the basic materials sector on the FTSE 100, and that sector carries a more than 9% weighting on the benchmark, according to FactSet data.

Off the FTSE 100, shares of Debenhams PLC DEB, -7.19% �slid 7.2%. On Tuesday, the department-store chain warned that it expects fiscal 2018 pretax profit to miss expectations as it faces increased competitor discounting and weakness in key markets.

Carla Mozee

Carla Moz茅e is a reporter for MarketWatch, based in London. Follow her on Twitter @MWMozee.

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Comment Related Topics United Kingdom London Stock Exchange London Markets Bank of England Europe European Markets Quote References UKX -40.18 -0.53% GBPUSD -0.0072 -0.5436% SXXP -2.97 -0.77% SHCOMP -114.08 -3.78% 399106 -97.60 -5.77% YMU8 -353.00 -1.41% ESU8 -31.75 -1.14% ANTO -16.50 -1.62% BLT -44.60 -2.66% RIO -127.00 -2.98% DEB -1.41 -7.19% Show all references MarketWatch Partner Center Most Popular Trump reportedly told Apple that tariffs against China would spare iPhones Chinese stocks end at 2-year low, Apple suppliers sink on trade-war worries ��Black swan�� author defends Tesla after actress posts video of car fire My new wife wanted to live with me for free, even though she had $800,000 in the bank��so I asked her to move out This is what the U.S. military��s ��Space Force�� could look like Community Guidelines �� FAQs $(function () { if (typeof dianomiUnitCallback !== 'undefined') { var dianomiCallback = new dianomiUnitCallback('belowarticle', 2582, 'dianomiBelowArticle', 'dianomi__list', 'padding:10px'); dianomiCallback.initialize('dianom