Markets

Asia stocks slide to four-month low as Trump raises stakes

US threatens new tariffs on Chinese goods as trade war escalates

Photograph: iStock

Tue Jun 19 2018 - 07:02

A sell-off in Chinese stocks drove Asian equities to a four-month low on Tuesday, as US president Donald Trump threatened new tariffs on Chinese goods in an escalating tit-for-tat trade war between the world's two biggest economies.

Spreadbetters expect European stocks to follow their Asian peers and open lower, with Britain’s FTSE dropping 0.3 per cent, Germany’s DAX shedding 0.7 per cent and France’s CAC losing 0.75 per cent.

Mr Trump warned on Monday that Washington would impose a 10 per cent tariff on $200 billion of Chinese goods after Beijing’s decision to raise tariffs on $50 billion in U.S. goods, which was in retaliation for US tariffs announced on Friday.

Mr Trump said if China increases its tariffs again in response to the latest US move, "we will meet that action by pursuing additional tariffs on another $200 billion of goods".

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China warned it will take “qualitative” and “quantitative” measures if the US government publishes an additional list of tariffs on its products.

The trade frictions have unnerved financial markets, with investors and businesses increasingly worried that a full-blown trade battle could derail global growth.

"Trump appears to be employing a similar tactic he used with North Korea, by blustering first in order to gain an advantage in negotiations. The problem is, such a tactic is unlikely to work with China," said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.

“A US-China trade spat alone won’t hurt global growth. But there is always potential for Trump to keep increasing his threats which could have broader implications. Increasing trade has helped growth in emerging markets and this could be negatively affected.”

MSCI's broadest index of Asia-Pacific shares outside Japan lost 1.2 per cent to its lowest since early February, dragged down by a slide in Chinese shares.

The Shanghai Composite Index dropped 3 per cent and plumbed its lowest since July 2016 and Hong Kong's Hang Seng shed more than 2 per cent.

"China's economy has already been clouded by a sharp slowdown in fixed asset investment growth due to the government's deleveraging drive, a problematic property sector, a mounting debt burden and rising credit defaults," economists at Nomura wrote.

“The rising risk of a disruptive trade conflict makes a bad situation tentatively worse.”

Japan's Nikkei lost 1.4 per cent, South Korea's KOSPI retreated 0.9 per cent while Australian stocks bucked the trend and added 0.2 per cent helped by a depreciating currency and an overnight bounce in commodity prices.

S&P 500 futures were off 0.85 per cent, pointing to a another down day for Wall Street shares which slipped on Monday.

The dollar fell 0.75 per cent to 109.715 yen following Trump’s tariff comments. The yen is often sought in times of market turmoil and political tensions.

The euro was 0.1 per cent firmer at $1.1633.

China’s yuan skidded to a five-month low. The Australian dollar, often seen as a proxy to China-related trades, brushed a one-year low of $0.7393.

In commodities, crude oil markets remained volatile ahead of Friday's Opec meeting at a time when Russia and Saudi Arabia are pushing for higher output.

Brent crude futures fell 0.65 per cent to $74.87 a barrel after rallying 2.5 per cent overnight.

Lower-risk assets gained on the latest round of trade threats.

Spot gold was up 0.35 per cent at $1,283.02 an ounce. The 10-year US Treasury note yield touched 2.882 per cent, its lowest since June 1st. – Reuters

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