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Markets shiver on Trump trade threats
September 01, 2018
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LONDON: Global stocks fell for a second day on Friday as a report that US President Donald Trump was preparing to step up a trade war with Beijing dampened risk appetite and erased some of the gains made in a rally this week.

Trump is ready to impose tariffs on $200 billion more in Chinese imports as soon as a public comment period on the plan ends next week. The White House declined comment..

The pan-European STOXX index was down over half a per cent. The trade sparring weighed particularly on car stocks, down 1.2 per cent and the worst performers.

Trump also threatened in the same interview to withdraw from the World Trade Organization if “they don’t shape up” − a move that would further undermine one of the foundations of the modern global trading system.

“It’s very hard to see a decisive resuscitation of risk appetite until these tensions are resolved,” said Paul O’Connor, head of the multi-asset team at Janus Henderson Investors.

“We have learned to under-react to some of the individual headlines because if you try to extrapolate from any of them you could find yourself in big trouble.” Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.7 per cent, set for a monthly drop of 1.5 per cent.

The index has underperformed the MSCI All-Country World Index (ACWI),, a gauge of the world’s 47 markets, for four months in a row as Sino-U.S. trade worries hit Chinese shares. The ACWI was down 0.1 per cent on the day while the Shanghai composite index was down half a per cent.

While trade jitters dominated market sentiment, indicators suggests activity in the world’s second largest economy remained firm. The official Purchasing Managers’ Index (PMI) showed growth in China’s manufacturing sector unexpectedly picked up in August after a two-month slide.

The cautious market benefited the safe haven Japanese yen, which rose 0.6 per cent on Thursday, its biggest daily rise in about six weeks. In European trade, it was 0.2 per cent higher at 110.47 per dollar.

The euro was 0.2 per cent lower at $1.1650, having shed 0.33 per cent in the previous session. The common currency has recovered from a 13-1/2-month low of $1.1301 hit in mid-August and is set to end the month little changed.

Against a basket of currencies, the dollar was 0.1 per cent lower.

Emerging market currencies were under pressure, with those of countries that rely on foreign capital to finance their current account deficits hit the hardest.

The Argentine peso, the world’s worst-performing currency this year due to the country’s poor economic health, fell 12 per cent on the day, bringing its month-to-date losses to 27 per cent.

Argentina’s central bank voted unanimously at an emergency meeting on Thursday to raise its benchmark rate to 60 per cent from 45 per cent but the unexpected move failed to stabilise the peso.

That knocked the Brazilian real to near the record low it touched in September 2015. It is down almost 10 per cent this month.

The Turkish lira, which has been hit by concerns over President Tayyip Erdogan’s influence over monetary policy and diplomatic spats with Washington, also slipped towards record lows marked about two weeks ago.

The lira bounced back about 1 per cent to 6.5950 per dollar in volatile trade. It has fallen 9 per cent so far this week, hit lately by reports that the central bank’s deputy governor was leaving the bank.

In Asia, the Indonesian rupiah fell to a three-year low even though the country’s central bank said it was “decisively” intervening to support the currency. The rupiah has lost two per cent so far this month.

The Indian rupee hit a record low, having fallen 3.4 per cent so far this month.

Oil prices

Oil prices slipped. Brent crude oil traded over half a per cent lower at $77.33 a barrel while US crude fell 0.7 per cent at $69.76 a barrel. The S&P 500 and the Dow Jones Industrial Average were largely flat on Friday hit by concerns about ongoing trade talks between the United States and other major economies, but gains in Apple and Amazon lifted the Nasdaq.

Wall Street’s rally came to a halt on Thursday after a report that US President Donald Trump was ready to impose tariffs on $200 billion more of Chinese goods next week.

A separate report on Friday about Canadian government officials expressing concerns that a final North American Free Trade Agreement (NAFTA) pact will not be reached within the Friday deadline, added to the trade worries.

“The threat of global growth taking a hit from a damaging U.S-China relationship remains ‘front and center’,” said Dean Popplewell, vice president of market analysis at Oanda.


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