TORONTO — U.S. blacklisting of some Chinese artificial intelligence companies raised investor pessimism ahead of trade talks this week and pushed North American stocks lower.
The flashpoint is the American government expansion of its trade blacklist to include AI startups over China's treatment of Muslim minorities.
That prompted China to threaten retaliation just days before the two sides are set to meet in Washington, D.C., on Thursday.
Reports suggest the Chinese delegation may cut short negotiations in protest. The response could be that simple or more serious, said Anish Chopra, managing director with Portfolio Management Corp.
"I think people were somewhat optimistic that at this round of trade talks there would be further progress made, but given the opening U.S. stance here it doesn't appear that way and then China's reaction, as well, it doesn't appear that serious headway would get made during this round of trade negotiations," he said in an interview.
Chopra said it's an odd time just days before talks resume for the U.S. to ban 28 Chinese companies from doing business with American companies, when it could have acted last week, he said.
The world's second-largest economy has lots of options to address trade talks, including waiting until next year to see if U.S. President Donald Trump is re-elected. But there's also a risk to China of waiting a year, added Chopra.
"China is well-known for being patient and being willing to play the long game but Donald Trump and the U.S. government can change their tariff stance to make it much more punitive," Chopra said.
"So there's lots of things that can still happen between now and then which may not be in China's favour."
In fact, U.S. tariffs are slated to increase next Tuesday to 30 per cent from 25 per cent on US$250 billion of Chinese imports. Trump last month delayed imposition of the increased tariffs but said they will move forward if there's no progress in trade negotiations.
The S&P/TSX composite index closed down 127.80 points at 16,293.95.
Nine of the index’s 11 major sectors were in the red, with the energy sector falling 3.75 per cent, technology off 1.5 per cent and financials down 0.73 per cent.
Energy dropped with shares of Encana Corp. losing 6.5 per cent as crude oil prices slipped again.
The November crude contract was down 12 cents at US$52.63 per barrel and the November natural gas contract was down 1.5 cents at US$2.29 per mmBTU.
Investors are concerned that it could take longer for the energy sector to recover as a result of slowing global growth, said Chopra.
"It could last quite a long time so that would have an impact on energy company profits."
The new managing director of the International Monetary Fund, Kristalina Georgieva, warned Tuesday that trade tensions could reduce global GDP by about 0.8 per cent by 2020.
The heavyweight financials sector lost some ground on falling U.S. treasuries and the belief that the Federal Reserve will again lower interest rates later this month, which doesn't help bank profits.
Materials rose 1.27 per cent with Centerra Gold Inc. up 3.7 per cent despite a slight dip in gold prices.
The December gold contract was down 50 cents at US$1,503.90 an ounce and the December copper contract was down 0.85 of a cent at US$2.57 a pound.
Health care also increased with Canopy Growth Corp. climbing 1.2 per cent.
In New York, the Dow Jones industrial average was down 313.98 points at 26,164.04. The S&P 500 index was down 45.73 points at 2,893.06, while the Nasdaq composite was down 132.52 points at 7,823.78.
The Canadian dollar traded for an average of 75.06 cents US compared with an average of 75.15 cents US on Monday.
This report by The Canadian Press was first published Oct. 8, 2019.
Companies in this story: (TSX:CG, TSX:WEED, TSX:ECA, TSX:GSPTSE, TSX:CADUSD=X)