Stock markets were uneasy and the dollar fell yesterday following reports that US President Donald Trump is planning to hit China with another round of tariffs, dealing a blow to hopes for conciliatory talks between the two economic giants.
Traders had late last week welcomed US Treasury Secretary Steven Mnuchin’s offer to meet officials from Beijing to avert an all-out trade war.
However, The Washington Post and Wall Street Journal said the president had decided to impose 10% levies on $200bn of Chinese imports and could make an announcement in the coming days.
That would come on top of the $50bn already announced over the summer and would account for about half of China’s exports to the United States.
Beijing has threatened to retaliate against any measures. Reports suggest China would call off any meetings if the new duties take effect.
Fanning the flames of the trade conflict, Trump yesterday hailed his aggressive use of tariffs as a success for American business.
“The ongoing conflict between the US and China continues to be a primary driver of market sentiment, with investors concerned about the prospect of a full blown trade war as neither side shows a willingness to blink,” said Craig Erlam, senior market analyst at Oanda trading group.
In Europe, London’s FTSE 100 was flat at 7,302.10, Frankfurt’s DAX 30 was down 0.2% at 12,096.41 and Paris’s CAC 40 lost 0.1% to 5,348.87 points at the close yesterday.
Hong Kong’s stock market led losses yesterday, while the main European indices were lukewarm.
While investors are in a selling mood, some positives could be taken from reports that Trump was considering 10% tariffs instead of the feared 25%, said JP Morgan Asset Management global market strategist Kerry Craig.
“Timing is also important when it comes to enacting any new tariffs. A staggered implementation is being viewed as the best of a bad situation,” Craig added.
Elsewhere on foreign exchange yesterday, emerging market currencies continue to struggle as investors fret over a possible spillover from financial crises in Argentina, Turkey, and South Africa.
“Equities in emerging Asia have been hit harder than those in the rest of the world today as last week’s small recovery has come to a swift end. We would not be surprised if they continued to underperform,” Capital Economics analysts said in a note.
Meanwhile, the pound held up as uncertainty over Brexit loomed large, with British Prime Minister Theresa May warning that her plan is the only alternative to crashing out of the European Union without an agreement.
May’s warning came as the International Monetary Fund warned that Britain’s economy would suffer “substantial costs” should it depart the EU in March with no divorce deal.
Over on the oil markets, prices were edging upwards as supply concerns rose over the US’ imminent return to sanctions on Iran’s oil industry.
“Oil prices remain better bid as the market focuses on the potential impact of US sanctions on Iran despite promises by Washington that the Saudis, Russia and the US could together raise output fast enough to offset falling supplies,” wrote Dean Popplewell, vice president of market analysis at Oanda.
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