Asian shares hit 6-month lows as tariffs take economic toll

Published: June 22, 2018 10:35:33 | Updated: June 22, 2018 19:08:12

A man looks at an electronic board showing Japan's Nikkei average outside a brokerage at a business district in Tokyo, Japan, August 9, 2017. Reuters/Files

Asian shares slid to their lowest in six months on Friday, on signs US trade battles with China and many other countries are starting to chip away at corporate profits, while oil prices were choppy ahead of an OPEC meeting to discuss raising output.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped as much as 0.35 per cent at one point to touch its lowest since early December.

Hong Kong's Hang Seng .HSI hit six-month lows, having lost 3.9 per cent so far this week. South Korea's KOSPI .KS11 hit nine-month lows and in mainland China, the CSI300 index .CSI300 lost almost 5 per cent this week to hit one-year lows.

Japan's Nikkei .N225 lost 0.85 per cent.

On Wall Street, the Dow Jones Industrial Average .DJI fell for an eighth straight session on Thursday and the S&P 500 .SPX lost 0.63 per cent, with industrials .SPLRCI and materials shares .SPLRCM hit hard.

Even the high-flying Nasdaq Composite .IXIC, which has outperformed this year on the perception that high-tech shares were less vulnerable to trade wars, shed 0.88 per cent.

In a sign that escalating tensions between the United States and its trade partners were taking a toll on the economy, the Philadelphia Federal Reserve’s gauge of US Mid-Atlantic business activity published on Thursday fell to a 1-1/2 year low.

“The Philadelphia Fed’s survey showed a drop in new orders. Investors are concerned that the trade frictions are starting to affect corporate sentiment and their activities,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

The impact on corporate profits has become tangible, with German carmaker Daimler (DAIGn.DE) cutting its earnings forecast on Wednesday, saying tariffs on cars exported from the United States to China would hurt Mercedes-Benz sales.

Despite budding signs of economic damage, trade frictions have shown no sign of abating.

US Commerce Secretary Wilbur Ross said on Thursday the United States needs to make it harder for its trading partners to have high trade barriers in order to achieve President Donald Trump’s ultimate goal of lower tariffs and a level playing field.

India joined the European Union and China in retaliating against Trump’s tariffs on steel and aluminum, raising import duties on US almonds by 20 per cent and leveraging its position as the world’s biggest buyer of the product.

While some investors still hope Washington and Beijing can work out a deal before July 6, when the first round of US tariffs on Chinese goods as well as retaliatory tariffs by China are due to take effect, others see diminishing hopes of an early compromise.

Worsening sentiment pushed US bond yields lower and triggered profit-taking in the dollar.

The 10-year US Treasuries yield fell to 2.910 per cent US10YT=RR from Thursday’s high of 2.950 per cent and its three-week high of 3.010 per cent touched on Wednesday last week.

As the dollar lost steam, the euro bounced back to $1.1611 EUR= after hitting an 11-month low of $1.1508 on Thursday.

The single currency had fallen on bets of a protracted period of monetary policy divergence between the U.S. Federal Reserve and the European Central Bank.

In addition, the Italian government’s appointment on Thursday of two eurosceptics to head key finance committees reignited worries about anti-euro voices in the euro zone’s third-largest economy.

The British pound jumped back from a seven-month trough after the Bank of England’s chief economist, Andy Haldane, unexpectedly joined the minority of policymakers calling for rates to rise to 0.75 per cent, citing concerns about growing wage pressure.

The pound GBP=D3 last fetched $1.3262, off Thursday's low of $1.3102.

The dollar changed hands at 109.95 yen JPY=, having slipped 0.65 per cent so far this week.

The Chinese yuan weakened about 0.15 per cent in both onshore CNY=CFXS and offshore CNH=D4 trades, staying near their lowest levels since mid-January.

 “If the U.S. puts more pressure on China with tariffs, I would suspect the Chinese authorities would like to drive the yuan lower to mitigate the impact,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The MSCI emerging markets index .MSCIEF fell to its lowest in almost nine months this week as it was also hurt by rising US interest rates, which could prompt fund outflows and also raise funding costs for many borrowers in those countries.

Some emerging market countries have recently raised interest rates to stem declines in their currencies..

Oil prices rose on uncertainty ahead of a meeting of the Organization of Petroleum Exporting Countries (OPEC) and other major producers including Russia starting later on Friday, Reuters reported.

Saudi Arabia and Russia have said a production increase of about 1.0 million barrels per day (bpd) or around 1.0 per cent of global supply had become a near-consensus proposal for the group and its allies, but Iran held out against a deal amid the prospect of lower exports due to US sanctions on Tehran.

Brent crude LCOc1 traded at $74.00 a barrel, up 95 cents, or 1.3 per cent, a day after it had fallen $1.69.

US West Texas Intermediate crude CLv1 rose 89 cents, or 1.35 per cent to $66.42 per barrel.

Share if you like