Shares falter on trade war fears; euro choppy amid uncertainty

SYDNEY — Asian investors dumped shares and drove to the safety of the yen and gold on Monday amid fears of a global trade war and worries of political uncertainty in Italy, risks that cloud the outlook for world growth.

Italian voters delivered a hung parliament on Sunday, flocking to anti- establishment and farright parties in record numbers and casting the euro zone’s thirdlargest economy into a political gridlock that could take months to clear.

The euro traded choppily around $ 1.2320, easing from a two-week high of $1.2365 as the euro sceptic 5- Star Movement saw its support soar to become the largest single party, according to projections based on early vote counting.

In the US, President Donald Trump proposed tariffs on imported steel and aluminum, a pledge that met with warnings of retaliation from the rest of the world over the weekend.

The specter of a global trade war hit risk appetite, sending MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.80% to the lowest since mid-February.

US stock futures did not inspire much confidence, with S&P E- Minis down 0.60% and Dow futuresoff 0.40%.

“The messy Italian election result adds a bit to the nervousness to global equity markets at present,” said Shane Oliver, Sydneybased chief economist at AMP.

“The Italian election… does run the risk of making Italy’s public finances worse than they already are with no progress in addressing Italy’s long-term competitiveness problems.”

The euro still found support after Germany’s Social Democrat party decisively backed the renewal of an alliance with Chancellor Angela Merkel’s conservatives, allowing her to form a new government more than five months since the country’s inconclusive election.

The single currency also got a lift from some safe-haven flows, as did the Japanese yen. The dollar fell for a fourth straight session to trade around ¥105.52, but was slightly above Friday’s low of ¥105.23, a level not seen since November 2016.

“Nothing ’s happened over the weekend to soften concerns about trade wars or retaliatory actions by other countries,” said Ray Attrill, head of forex strategy at National Australia Bank. “There is no rowing back so that gets us to a cautious start.”

Canada and Mexico have threatened retaliation, and the European Union said it would apply 25% tariffs on about $3.5 billion of imports from the US if Mr. Trump carried out his threat.

China said on Sunday it did not want a trade war with the US but will defend its interests, warning that policies based on “mistaken assumptions” will damage bilateral relations.

Investors fear the current momentum in the global economy could be lost if Mr. Trump starts a trade war.

Asian markets were a sea of red with Japan’s Nikkei and South Korea’s KOSPI both down about 1%, while Chinese shares eased too after starting on a positive note. Hong Kong’s Hang Seng index slipped 1.4%.

“Frustration with a lack of market access and a lack of fair trade are understandable,” said Peter Jolly, global head of research for National Australia Bank.

“If this escalation draws that into focus with some improvement, that would be positive. But retaliatory tit- for- tat measures would weigh against market access, a cost to growth with increases in trade prices, costs, and inflation.” —