Major US stocks fell significantly as fears of a worsening US-China trade war and slowing global economic growth intensified after Beijing devalued the yuan against the dollar to its lowest level since 2008 in response to Washington’s latest threat to introduce new tariffs on Chinese imports.

China allowed the national currency to break the important mark of 7 yuan per dollar on Monday for the first time in more than ten years, and US President Donald Trump called the move a “serious violation.” In addition, Bloomberg reported that China asked state-owned companies to suspend US agricultural imports.

These steps followed US President Donald Trump's statement last week that Washington intends to introduce a new 10 percent tariff on Chinese imports of $ 300 billion worth of Chinese goods on September 1. Trump's threats came after US and Chinese officials discussed trade issues. at the beginning of last week, when the two countries tried to resume negotiations.

The increasing uncertainty prompted investors to buy government bonds, gold and other safe assets such as the Japanese yen. The yield on 10-year US Treasury bonds fell to 1.73% and reached its lowest level since November 2016. Gold futures rose 1.1%.

At the same time, mixed macroeconomic reports failed to support the market. Data provided by the Institute for Supply Management (ISM) showed that the index of business activity in the US services sector fell in July to 53.7 points compared to 55.1 points in June. The latter value was the lowest since August 2016. Analysts predicted that the indicator would rise to the level of 55.5 points. In contrast, the Markit business activity index for the service sector showed growth to 53 points in July from 51.5 points in June against the economists' forecast of 52.2.

All DOW components recorded a decrease (30 out of 30). Outsiders were Apple Inc. (AAPL; -5.05%).

All S&P sectors completed trading in the red. The largest decline was shown by the technology sector (-3.5%).

At the time of closing:

Dow 25,717.74 -767.27 -2.90%

S&P 500 2,844.75 -87.30 -2.98%

Nasdaq 100 7,726.04  -278.03 -3.47%

The Institute for Supply Management (ISM) reported on Monday its non-manufacturing index (NMI) came in at 53.7 in July, which was 1.4 percentage points lower than the June reading of 55.1 percent. The July reading pointed to the slowest expansion in the services sector since August 2016.

Economists forecast the index to increase to 55.5 last month. A reading above 50 signals expansion, while a reading below 50 indicates contraction.

Of the 18 manufacturing industries, 13 reported growth last month, the ISM said, adding that respondents indicated ongoing concerns related to tariffs and employment resources.

According to the report, the ISM’s non-manufacturing business activity measure fell to 53.1 percent, 5.1 percentage points lower than the June reading of 582 percent. That reflected growth for the 120th consecutive month, at a slower rate in June. The new orders gauge decreased to 54.1 percent, 1.7 percentage points lower than the reading of 55.8 percent in June. The Prices Index dropped 24 percentage points from the June reading of 58.9 percent to 56.5 percent, indicating that prices increased in July for the 26th consecutive month. Meanwhile, the employment indicator rose 1.2 percentage points in July to 56.2 percent from the June reading of 55 percent.

 Commenting on the data, the Chair of the ISM Non-Manufacturing Business Survey Committee, Anthony Nieves, noted, "The past relationship between the NMI and the overall economy indicates that the NMI for July (53.7 percent) corresponds to a 1.8-percent increase in real gross domestic product (GDP) on an annualized basis.”

The latest report by IHS Markit revealed on Monday the seasonally adjusted final IHS Markit U.S. Services Business Activity Index (PMI) stood at 53.0 in July, up from 51.5 in June and up from the earlier released “flash” figure of 52.2.

The reading signaled the fastest business activity expansion across the U.S. service sector since April.

Economists had forecast the index to stay unrevised at 52.2.

According to the report, new orders received by service providers increased at the fastest rate since March and new business from abroad grew at the strongest pace for five months. Meanwhile, the rate of job creation was only moderate overall, and inflationary pressures were historically subdued, with rates of both input price and output charge inflation easing.

Before the bell: S&P futures -1.49%, NASDAQ futures -2.06%

U.S. stock-index futures declined sharply on Monday as a trade war between the world’s largest economies intensified after China weakened its currency to its lowest level since 2008 in response to the U.S. President Trump's threat to impose new 10% tariff on $300 billion worth of Chinese imports. In addition, Beijing asked state companies to discontinue purchasing U.S. agricultural products. 

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