Trade war hitting hard
Global stocks slip on tariffs, Argentina hit by capital controls
LONDON — Global markets remained subdued on Monday after the United States and China imposed new tariffs on each other, while the spotlight returned to emerging-market risk as Argentina imposed capital controls.
Argentina’s international dollar bonds dropped to record lows, its financial stocks tumbled and risk premia shot up after President Mauricio Macri re-imposed capital controls on Sunday as the country battled to avoid its ninth sovereign default.
The about-face by Macri, who had previously lifted many protectionist practices of his predecessor, Cristina Fernandez de Kirchner, came after the government failed to stem heavy investment outflows and to shore up its tumbling currency.
MSCI’S All-country World Index, which tracks shares across 47 countries, was down 0.04% on the day.
U.S. markets were shut for a holiday on Monday. European shares ticked higher as surprisingly positive data helped China weather the latest round of titfor-tat tariffs between the United States and China that came into effect over the weekend.
Washington imposed 15% tariffs on a variety of Chinese goods and China began to impose new duties on a $75 billion target list. However, both sides will still meet for talks later this month, U.S. President Donald Trump said.
Trade-sensitive German shares were 0.4% higher and the pan-european stocks benchmark index STOXX 600 was up 0.63% by midday in London, beginning September higher. It fell 1.6% in August as the trade war intensified.
“Despite the market’s sanguine take, we believe the ultimate outlook for the trade dispute has become harder to predict with confidence,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
“Since trade tensions have become the major driving force for stocks, even greater than monetary policy, we advise against adding significantly to equity exposure – particularly for those who have an adequate strategic allocation.”
Income-generating carry positions such as select emerging market currencies will perform well as central banks ease policy in response to weaker growth, Haefele added.
Euro zone manufacturing activity contracted for a seventh month in August as declining demand sapped optimism, a survey showed, strengthening expectations for monetary easing by the European Central Bank next week.
At its July meeting, the ECB all but promised to ease policy as the growth outlook worsened.
Italian bond yields fell toward recent multi-year lows after Italy’s prime minister said at the weekend talks on a new government should be completed by Wednesday. The 5-Star Movement and the Democratic Party held talks over the weekend on cabinet posts and a common agenda. In currency markets, the dollar was 0.1% higher against a basket of peers.
The euro was 0.2% lower at $1.09665
TRADE WAR
MSCI’S broadest index of Asiapacific shares outside Japan dropped 0.24%, led by 0.5% drop in Hong Kong’s Hang Seng <.HSI> after another weekend of violent anti-government protests.
Chinese shares rose, however, with the CSI300 index <.CSI300> gaining 1.1% despite the trade row escalation. A pledge by China’s State Council to boost support for the economy helped.
Caixin/markit Manufacturing Purchasing Managers’ Index (PMI), a private sector survey, on Monday showed factory activity unexpectedly expanded in August, though gains were modest and contrasted with official data that pointed to further contraction.