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Asian markets tumble as new tariffs threat ends calm

Asian markets tumble as new tariffs threat ends calm

HONG KONG, July 11: The uneasy calm that had descended on Asian markets was shattered Wednesday after the US threatened to hammer China with tariffs on a further $200 billion of imports, ratcheting up a trade war between the world’s top two economies, reports AFP. Washington’s announcement comes just days after the two sides exchanged tit-for-tat measures on a range of goods worth tens of billions of dollars, with US Trade Representative Robert Lighthizer blaming Beijing. “As a result of China’s retaliation (to Friday’s measures) and failure to change its practices, the president has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports,” he said in a statement. Tuesday’s announcement is the latest move by Donald Trump in his America First protectionist agenda that has also seen the US target Canada, the European Union and Mexico, who have also hit back with their own measures, sparking global trade war fears. Trump has previously warned he would hit a total of $450 billion in Chinese goods, which essentially accounts for all the country’s US-bound exports, citing its unfair practices and intellectual property theft. While observers have been nervously expecting the next salvo in the trade row, the news jarred markets, which had enjoyed some stability this week from upbeat US jobs data and hopes for the upcoming earnings season. “This latest story will serve as a reality check for the market, reminding investors to reconsider how aggressive they want to be,” Michael O’Rourke, chief market strategist at JonesTrading, told Bloomberg News. “Regardless, the $200 billion in potential additional tariffs is not a surprise. The president made everyone well aware of them.” The news sent risk assets into a nosedive. Tokyo’s Nikkei ended the morning 1.4 percent lower, with exporters hurt as the safe-haven yen surged against the dollar. Hong Kong and Shanghai each lost 1.9 percent, while Seoul shed more than one percent and Singapore gave away 1.5 percent. Sydney retreated 0.6 percent, while Taipei and Jakarta were also sharply lower. Stephen Innes, head of Asia-Pacific trade at OANDA, said “nothing is written in stone and the tariffs are not set to take effect until September” but the move was still “a very sobering reality check as to just how fragile sentiment around trade war rhetoric is”. But Ray Attrill, head of forex strategy at National Australia Bank, added that he saw the move as “a negotiating tactic designed to get China back to the negotiating table on trade”, adding that higher tariffs would “inevitably impose significant burdens on US consumers”. While the dollar slipped against the yen, the rush for safety saw the greenback pile ahead against higher-yielding currencies, with the South Korean won down 0.3 percent, Indonesian rupiah shedding 0.2 percent and Thai baht 0.1 percent lower. The Chinese yuan dived 0.6 percent, wiping out recent gains, with many warning that Beijing stands to suffer most from a full-blown trade war, which comes just as its economy shows signs of stuttering. Observers will be keeping a close eye on the release Friday of Chinese trade data, which will give an idea about how the row has affected the country’s exports so far. Oil prices also sank on concerns that a trade war could hit demand for the commodity. The clock now starts ticking on a two-month period of public comment before the levies get imposed. Trump has said he may ultimately target more than $500 billion worth of Chinese goods - roughly the total amount of U.S. imports from China last year. Inevitably, Shanghai markets were hardest hit, with stocks there closing down almost 2 percent and the yuan weakening toward last week’s 11-month lows. Hong Kong’s Hang Seng lost more than 1 percent, as did Japan’s Nikkei as the yen received something of a safety bid. Europe’s already-weaker main bourses, extended losses after Trump kicked off a NATO summit in Brussels by accusing Germany of being a “captive” of Russia. “There is still a good six or seven weeks before these (tariffs) take effect so it is not like we are going to see these tomorrow, but it is definitely the next step in a trade war,” TD Securities global strategist James Rossiter said. “I’m curious to see what China does to retaliate in the coming days.” The concerns were also evident in currency markets. The Australian dollar, often seen as a proxy for China’s economic fortunes due to raw materials it sells there, fell 0.9 percent. South Korea’s won and Taiwan’s dollar both dropped about 0.7 percent while Mexico’s peso which also faces the threat of Trump ditching the NAFTA trade pact, lost 0.5 percent. It was industrial metals prices though that took the heaviest hit over worries that the dispute could ultimately dent China’s commodity-hungry economy. Copper, zinc and lead all slumped as much as 4 percent to their lowest levels in about a year. Copper was down 3 percent at $6,180.50. Nickel, tin and aluminum also dropped to multi-month lows. Trump’s latest move took the wind out of investors’ sails largely because the central scenario for many in the markets is that Washington will eventually step back from the escalating row and settle for some sort of compromise. The more it turns up the heat therefore, the more likely the tariffs get implemented, just like the 25-percent levies on $34 billion of Chinese and U.S. imports triggered on Friday. “There certainly is going to be pronounced risks mainly because we’ve now moved on to the tit-for-tat-for-tit phase of it,” Mizuho Bank’s head of economics and strategy Vishnu Varathan said. “This is going to drag on until they can all come to the table and agree to even the playing field. But the unpredictability of the situation continues to rattle the markets,” Varathan said. Washington had proposed the extra tariffs after efforts to negotiate a solution to the dispute failed to reach an agreement, senior administration officials said on Tuesday. Wall Street’s S&P 500 had closed at its highest level for almost six months but futures on the index and the Dow Jones were down 0.8-0.9 percent respectively, which pointed to a bumpy restart later. Morgan Stanley told clients that the approaching U.S. earnings season could also trigger a new wave of risk aversion if firms start warning of slower earnings growth and the rising threat to profitability caused by trade tariffs. The yen, often sought in times of political tensions and market turmoil, gained against a number of peers. The dollar pulled back from a near two-month peak of 111.355 to 111.20. The euro fell 0.3 percent to $1.1725 and the Australian dollar lost 0.8 percent to $0.74. China’s yuan meanwhile dropped 0.7 percent against the U.S. currency to 6.7 per dollar and back towards an 11-month low of 6.73 plumbed last week. “We are buyers of typical safe haven currencies (such as yen and dollar) against high-beta or trade-oriented currencies (such as Korean won, Taiwan dollar and Malaysian ringgit),” Morgan Stanley said. Demand for assets that traditionally ride out turbulence saw the 10-year Treasury note yield fall 3 basis points (bps) to 2.840 percent. That was a pullback from a one-week peak of 2.875 percent scaled the previous day. Bond yields across most of Europe were 2 to 3 bps lower also. Germany’s 10-year Bund yield fell 2 bps to 0.30 percent with UK gilts more cautious as Brexit turmoil continue to batter the country’s ruling Conservative party. Oil prices were also hit by the trade war concerns. Brent fell more than $2 a barrel on the prospect of a demand drop and as Libya announced the reopening of a number of its major oil export terminals. It went as low as $76.80 before recovering slightly to $76.86. U.S. light crude, supported by a tight North American market, was down a more modest 75 cents at $73.36 a barrel.

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