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Trump's tariffs jolt global stocks, trigger rush to safety

Published: August 02, 2019 14:08:09 | Updated: August 08, 2019 13:07:26


A passerby walks past in front of a stock quotation board outside a brokerage in Tokyo, Japan, May 10, 2019. Reuters/Files

Global stocks took another beating on Friday with investors piling into safe-haven assets after US President Donald Trump said he would slap a 10 per cent tariff on the remaining $300 billion of Chinese imports starting September 1.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.6 per cent to its lowest since mid-June while Japan’s Nikkei tumbled 2.4 per cent.

Chinese stocks were also hit hard, with the benchmark Shanghai Composite and the blue-chip CSI300 down 1.5 per cent and 1.6 per cent, respectively, while Hong Kong’s Hang Seng dropped 2.2 per cent.

US stock futures slipped 0.4 per cent in Asian trade after the S&P 500 skidded 0.9 per cent to hit one-month lows overnight, while Pan-European Euro Stoxx 50 futures shed 1.9 per cent.

Trump’s announcement, which came a day after US and Chinese negotiators concluded a meeting in Shanghai without significant signs of progress, marks an end to a truce in the trade war struck in June and could further disrupt global supply chains.

“After the U.S.-China summit meeting, people had expected there would be a lull for quite some time,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“And the market was also relieved by signs of recovery in the semi-conductor sector. But now investors and companies will have to revise their such scenarios.”

China’s state media quickly denounced the move, with the editor in chief of the Global Times saying on Friday that a trade deal between the United States and China was now “further away.”

The war of words appeared to escalate after US Secretary of State Mike Pompeo said “decades of bad behaviour” from China had hampered free trade and prompted tariffs and other action from Washington.

The proposed levies triggered a stampede for safe-haven assets, including US bonds, the yen and gold while the Chinese yuan and the Australian dollar hit multi-month lows.

Gold stood at $1,432.58 per ounce, down 0.9 per cent in Asia after having risen 2.4 per cent on Thursday, staying near a six-year high of $1,453 touched two weeks ago.

The yen edged up to 107.06 on the dollar after rising 1.3 per cent overnight, its biggest daily gain in more than two years.

The euro also recovered to $1.1075, from a two-year low of $1.1027 hit in US trade.

In contrast, the risk sensitive Australian dollar dropped to a seven-month low of $0.6795 while the yuan slid to its weakest since November 2018, softening by over 0.7 per cent to 6.95 per dollar in onshore trade and fell to 6.9563 in the offshore market.

The 10-year US bond yield fell almost 12 basis points on Thursday to 1.902 per cent, hitting the lowest level since November 8, 2016, when Trump won a surprise victory in the presidential election. The 10-year yield extended its slide to as low as 1.875 per cent in Asian trade.

Trump’s decision has thrown the Federal Reserve another curve ball that may force it to again cut interest rates to protect the US economy from trade-policy risks after its first rate cut in more than a decade on Wednesday.

Although Fed Chairman Jerome Powell said the rate cut was a “mid-cycle adjustment” and not a start to a full-blown rate-cutting cycle, markets aren’t fully convinced.

The October Fed funds rate futures have jumped to now fully price in a rate cut in September, compared with only around 60 per cent before the tariff announcement. Another 25 basis point move is priced in by December, according to Reuters news agency.

“In the grand scheme of things, it will become clearer and clearer that the Federal Reserve has started an easing cycle and will have no choice but to cut rates further,” said Akira Takei, fund manager at Asset Management One.

The new tariffs would hit a wide swathe of consumer goods from cell phones and laptop computers to toys and footwear, at a time when the manufacturing sector is already reeling from the accumulative impact of the trade war.

The US Institute for Supply Management said on Thursday its index of national factory activity fell to 51.2 last month, the lowest reading since August 2016. That came on the heels of surveys in Europe and Asia showing factories under the pump, with manufacturing activity in many countries shrinking in the face of intensifying trade frictions.

Oil prices bounced back a tad after suffering sharp falls the previous day.

Brent crude rose 2.7 per cent to $62.12 per barrel, after having fallen 7.0 per cent on Thursday, its biggest daily percentage drop since February 2016. US West Texas Intermediate (WTI) crude rebounded 2.1 per cent to $55.10, having shed 7.9 per cent the previous day.

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