Asia share markets hit by US auto tariff threat, dollar pulls back

Published: May 24, 2018 11:01:28 | Updated: May 26, 2018 12:17:21

An investor sits in front of an electronic board showing stock information at a brokerage house in Nanjing, Jiangsu province, China, September 27, 2016. Reuters/Files

Asian shares fell on Thursday after the US government launched a national security probe into auto imports that could lead to new tariffs, and President Donald Trump’s comments indicated fresh setbacks in US-China trade talks.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.1 per cent higher, but Japan’s Nikkei stock index fell 1.2 per cent as auto shares slumped. South Korea’s KOSPI lost 0.3 per cent.

A broad MSCI index of automobile and auto components firms was down 0.9 per cent. Tokyo’s SE TOPIX transportation equipment index was 2.6 per cent lower.

The US Commerce Department said on Wednesday that it would launch a national security investigation into car and truck imports under Section 232 of the Trade Expansion Act of 1962, a move that could lead to tariffs like those imposed on steel and aluminium in March.

Adding to market jitters, Trump on Wednesday called for “a different structure” in any trade deal with China, fuelling uncertainty over the negotiations.

On Thursday, China’s Commerce Ministry said it had not pledged to cut China’s trade surplus with the US by a certain figure, and that it hopes the US implements measures promised during trade negotiations as soon as possible.

China’s blue chip CSI 300 index was 0.1 per cent lower.

Prompting further uncertainty, Trump on Wednesday cast doubt on plans for an unprecedented summit with North Korean leader Kim Jong Un, saying he would know next week whether the meeting would take place.

“There’s a lot of noise around Donald Trump, China-U.S. trade, the auto imports now, and then the Korean summit, and all these things are just weighing on investors at the moment,” said Shane Oliver, chief economist & head of investment strategy, AMP Capital, Sydney.

“I think we probably would have seen a decent day in Asian markets were it not for these ongoing geopolitical worries because the minutes from the Fed’s last meeting were relatively benign.”

While the minutes from the Federal Reserve’s May 1-2 meeting indicated that policymakers expect another interest rate increase would be warranted “soon” if the US economic outlook remains intact, they helped to ease market concerns that the Fed would accelerate the pace of interest rate increases.

The two-year Treasury note yield, which rises with traders’ expectations of higher Fed fund rates, was at 2.5121 per cent after touching 2.5970 on Wednesday.

The yield on benchmark 10-year Treasury notes fell back below the 3-per cent threshold to 2.9825 per cent, compared with its US close of 3.003 per cent on Wednesday.

Analysts said that market uncertainty was prompting a clear flight to safety across financial markets.

The dollar was down 0.6 per cent against the yen to 109.44.

“With Trump’s unpredictable behavior leaving investors on edge, the Japanese yen has scope to appreciate further in the short term,” said Lukman Otunuga, an analyst at FXTM. “However, a strengthening dollar on the back of heightened U.S. rate hike expectations could limit the yen’s upside gains.”

The euro was up 0.1 per cent on the day at $1.1709. The dollar index, which tracks the greenback against a basket of six major rivals, was 0.2 per cent lower at 93.839.

Signs of growth

Concerns over trade, talks and tariffs overpowered indications of strong economic performance in two of the region’s major economies.

Confidence among Japanese manufacturers saw its first rise in fourth months, and service-sector sentiment rose to a record high in the latest Reuters Tankan poll, underscoring expectations that the Japanese economy will return to growth in the second quarter.

In South Korea, Finance Minister Kim Dong-yeon said the economy is on track for annual growth of 3.0 per cent despite concerning indicators such as high youth unemployment.

The Bank of Korea held interest rates steady for a sixth straight month on Thursday, with inflation seen remaining below target and amid concerns a US-China trade war would hurt regional economies.

In commodities markets, US crude was down 0.2 per cent at $71.68 a barrel. Oil prices fell on Wednesday after an unexpected rise in US crude and gasoline inventories.

Brent futures were 0.3 per cent lower at $79.53 a barrel, continuing to move lower after rising above $80 for the first time since November 2014 last week.

The most-traded iron ore futures on the Dalian Commodity Exchange rose for the first time in six sessions on Thursday, gaining 0.3 per cent, Reuters reported.

Weak commodity prices continued to put pressure on Australian shares, which were 0.2 per cent lower, extending losses into a sixth consecutive session. New Zealand’s benchmark S&P/NZX 50 index was 0.7 per cent higher.

Gold was slightly higher. Spot gold was traded at $1,294.11 per ounce.

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