Renewed trade war fears pummel world shares, dollar
London: World shares slipped for the second straight day and the dollar held near one-week lows after U.S. President Donald Trump’s threats to slap $60 billion in tariffs on Chinese imports reminded investors of the threat to world economic growth.
Equity markets were attempting to recover after Tuesday’s hefty losses, heartened by robust Chinese factory data, but struggled to overcome fears of a global trade war as well as the prospect of political uncertainty in the United States.
“As long as the threat of protectionism and a trade war remains, markets will remain vigilant,” Rabobank analysts told clients.
The tariffs, reportedly targeting Chinese tech, electronics and telecoms, were revealed by sources hours after Trump abruptly fired Secretary of State Rex Tillerson. Tillerson’s exit follows that of economic advisor Gary Cohn, a strong free trade proponent.
Since Trump took office in 2017 as many as 35 senior officials from his administration have walked out, including Tillerson, according to Citi.
“The market probably correctly viewed this move as weakening internal White House opposition to some of Trump’s less market-friendly policies, in particular the President’s trade policy,” Daiwa strategist Mantas Vanagas said.
That news had sent the dollar skidding, pushed world stocks lower and bond prices higher. The moves accelerated after news broke of the planned tariffs, with Wall Street closing some 0.6-1 percent lower and hefty losses across Asia, led by technology shares .N225 .HSI .KS11.
The negative momentum faded somewhat in Europe, with a pan-European equity index up 0.24 percent after falling one percent on Tuesday . That left MSCI’s all-country equity index down 0.12 percent .MIWD00000PUS, its second day in the red.
The dollar was flat after three days of losses while U.S. Treasury yields were trading just off one-week lows touched earlier in the session .DXY US10YT=RR.
German 10-year government bond yields DE10YT=RR approached one-month lows and currently stand 20 basis points below this year’s peak at 0.60 percent.
Futures signaled a slightly firmer open for Wall Street, reversing their earlier direction ESc1.
The trade war fears eclipsed strong economic data from China which showed industrial output expanding at a surprisingly faster pace at the start of the year. Fixed asset investment also beat forecasts, while retail sales improved.
The data helped Brent oil futures up almost half a percent LCOc1 after two days of declines while copper futures jumped almost one percent.
“(China’s) economy is well placed to weather any increase in U.S. tariff rates. In fact, the Chinese statistical bureau is tipping ‘relatively fast growth’ for both exports and consumption in 2018, “ said Craig James, Sydney-based chief economist at CommSec.
The data highlighted the relatively robust picture of China’s and also the global economy - the latter is slated to grow this year by 3.9 percent, according to the International Monetary Fund’s forecast in January.