US-China trade war drags stocks down

AUTO SECTOR IS THE WORST PERFORMING IN EUROPE, DOWN 0.9%

World stocks came under pressure on yesterday as new tariffs took effect in the US China trade war and markets speculated about the US President Donald Trump’s position following legal rulings against two former advisers.

The MSCI world equity index, which tracks shares in 47 countries, was 0.1 per cent lower by 1116 GMT, while a rise across tech and energy stocks helped Europe’s STOXX 600 eke out a 0.1 per cent gain.

Stocks were subdued as the US and China, despite ongoing talks, implemented 25 per cent tariffs on $16 billion worth of each other’s goods.

The world’s two biggest economic powers have now slapped tit-for-tat tariffs on a combined $100 billion of products since early July, with more in the pipeline, adding to risks to global economic growth.

Caroline Simmons, deputy head of the UK chief investment office at UBS Wealth Management, cited such concerns as a reason for paring back an overweight on global equities to a very small position.

“We’ve got trade conflicts, and sanctions, in Turkey and Russia, so there are a few things going on that we were a little nervous about,” Simmons said, though her firm still saw upside to equity markets, with good fundamentals.

The auto sector, particularly sensitive to tariff developments, was the worst performing in Europe, down 0.9 per cent.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2 per cent. Hong Kong’s Hang Seng index stumbled 0.5 per cent while Chinese blue-chips gained 0.4 per cent.

Trade barriers

While investors are looking ahead to see how increasing trade barriers between China and the US might affect corporate earnings, political turmoil also weighed.

Trump’s former lawyer Michael Cohen pleaded guilty to campaign finance violations on Tuesday and former campaign manager, Paul Manafort, was found guilty on charges of tax and bank fraud.

Investors are considering whether the twin setback will hurt the president and his Republican Party’s prospects in midterm elections.

That weighed on Wall Street overnight and the market ended mixed despite the S&P 500 clocking its longest bull run in history. E-Minis for the S&P 500 were also subdued on yesterday, trading flat.

Cohen’s plea deal does not mean the president has been implicated in anything, press secretary Sarah Sanders said at a White House briefing.

Political tensions were not limited to the United States.

Australian shares slipped 0.3 per cent after several senior ministers tendered their resignations on yesterday and demanded a second vote on Prime Minister Malcolm Turnbull’s leadership.

The Australian dollar fell 0.8 per cent for its second straight day of declines.