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Xi Jinping and Donald Trump upstaged Federal Reserve chair Jerome Powell this morning.

Powell’s Jackson Hole speech this morning was supposed to be the day’s big market event. (More on this speech in a later post.)

But this morning China announced that it would retaliate to the last round of additional 10% tariffs on $300 billion in Chinese exports to the United States with 5% to 10% tariffs on $75 billion of U.S. exports to China effective September 1 and December 15. An additional 5% tariff on American soybeans and crude-oil imports will begin next month. A suspended extra 25% duty on U.S. cars will resume December 15, with an additional 10% on top for some vehicles. With existing general duties on autos taken into account, the total tariff charged on U.S.-made cars would be as high as 50%.

Not to be left behind in the tit for tat wars U.S.  President Donald Trump tweeted that he will respond to China’s response this afternoon. (More on this as it happens.) He also ordered (whatever that actually means) U.S. companies to find alternatives to manufacturing in China.

U.S. financial markets were not amused by any of the retaliatory moves and the additional uncertainty introduced into the U.S. economy by the White House response.

As of 1 p.m. New York time the Standard & Poor’s 500 was down 2.07% and the Dow Jones Industrial Average was lower by 1.92%. The NASDAQ Composite was off 2.57% and the small cap Russell 2000 plunged 2.57%. The iShares Emerging Markets ETF (EEM) dropped 1.54%.

The news sent money into Treasuries, pushing yields down. The yield on the 10-year Treasury fell 10 basis points to 1.51%. The yield on the 2-year Treasury dropped to $1.51%. Yesterday the 2-year yield had been 1.60%.

Risk hedges climbed. Gold rose 1.93% to $1537.60 an ounce. Silver gained 2.17% to $17.55 an ounce.

Oil prices fell with U.S. benchmark West Texas Intermediate slumping 3.54% to $53.39 a barrel. International benchmark Brent crude slid $2.29% to $58.55 a barrel.

The U.S. dollar fell hard with the Dollar Spot Index (DXY) low by 0.48%.

The CBOE S&P 500 Volatility Index (VIX) spiked 21.2% to 20.21.