Wednesday, April 17, 2024

Trade war worries slam China and emerging markets


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LONDON − Chinese stocks fell almost four per cent and alarm bells rang across global markets on Tuesday, as trade tensions between the United States and China escalated further.

The yuan also hit a five-month low overnight after US President Donald Trump threatened to impose a 10 per cent tariff on another $200 billion of Chinese goods. Beijing in turn warned about $50 billion of retaliatory penalties on US goods.

Asian stocks wilted to a four-month low and Australia’s dollar, South Africa’s rand and the euro were among a diverse group of currencies caught in the crossfire.

Europe’s main equity benchmarks sank 1 to 1.5 per cent and Wall Street futures were pointing to similar declines, while Government bonds and the Japanese yen rallied as investors sought protection.

“You only have to look at how far the main Shanghai index has fallen to see that people would probably want some safe-haven assets at this point,” said DZ Bank analyst Andy Cossor.

China’s falls came after it had warned it would take “qualitative” and “quantitative” measures if the US government published 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,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.

“The problem is, such a tactic is unlikely to work with China.”

Shares of planemaker Boeing, which have acted as a proxy for US – China tensions in recent months as it is the single largest US exporter to the country, fell 2.1 per cent US ‘premarket’ moves.

Overnight the Shanghai Composite Index had slumped nearly 5 per cent at one point to its lowest level since mid-2016, as more than 1 000 stocks slumped by their 10 per cent daily limit.

Hong Kong’s Hang Seng also shed as much 3 per cent and MSCI’s Asia-Pacific index fell 1.9 per cent to its lowest since early December. The losses had intensified through the day as the rout deepened in China.

China’s economy is already clouded by a sharp slowdown in fixed asset investment growth because of the government’s de-leveraging drive, a problematic property sector, mounting debt and rising credit defaults.

“In the global environment − and due in particular to this trade issue − the risks are more on the downward side and a little bit worrying,” European Central Bank policymaker Jan Smets said in a CNBC interview. “Basically it is not good news.”

US stocks were affected as well, as they opened lower on Tuesday as President Donald Trump’s latest threat to impose duties on additional Chinese goods heightened worries that tit-for-tat tariffs could spiral into a trade war.

The Dow Jones Industrial Average fell 223.88 points, or 0.90 per cent, at the open to 24 763.59. The S&P 500 opened lower by 21.74 points, or 0.78 per cent, at 2 752.01. The Nasdaq Composite dropped 88.55 points, or 1.14 per cent, to 7 658.47 at the opening bell.

At current levels, the Dow Jones has wiped out all its gains for the year. (Reuters)


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