Stocks slide, yen gains as trade war fears grip markets
Germany’s Dax down 1.4%, French CAC 40 1.3% lower and Britain’s FTSE 100 0.4% in the red
The threat of a global trade war sent stock markets sliding yesterday and investors rushing for the safety of currencies like the yen and government bonds, after US President Donald Trump announced tariffs on up to $60 billion (Dh220 billion) of Chinese goods.
Another bruising week for stocks has left global equity markets heading for their first quarterly loss since early 2016 after a spike in volatility, nervousness about rising inflation and the spectre of a trade war spooked investors enjoying a multi-year bull run.
European stocks fell, with Germany’s Dax down 1.4 per cent, the French CAC 40 1.3 per cent lower and Britain’s FTSE 100 0.4 per cent in the red.
That followed large falls in the US and overnight in Asia, although futures pricing pointed to a slight recovery for US stocks when they opened yesterday.
Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60 billion of imports from China, although the measures have a 30day consultation period before they take effect. China urged the United States to “pull back from the brink”, but investors fear Trump’s tariffs are leading the world’s two largest economies into a trade war with potentially dire consequences for the global economy.
Retaliation
China disclosed its own plans yesterday to impose tariffs on up to $3 billion of US imports in retaliation against US tariffs on Chinese steel and aluminium products.
The MSCI World Index, down around 3.4 per cent since Monday, is on course for its worst week since early February when a spike in volatility sent markets into a tailspin.
“The equity markets are getting clobbered, which is not that surprising with fears of a trade war breaking out,” said Paul Fage, a TD Securities emerging markets strategist.
With investors seeking out safer assets, many have jumped into government bond markets in Europe and the United States.
US 10-year Treasury yields, which fell almost 8 basis points on Thursday, rose yesterday but were still set for their biggest two-week fall since November.
In Europe, benchmark issuer Germany’s 10-year bond yields hovered close to 10-week lows struck a day earlier at around 0.52 per cent.
While German bond yields recovered in European trading, they were still on track for their biggest two-week drop since November.
Many investors also turned to the yen, a currency likely to benefit from a full-fledged trade war.
The Japanese currency gained as much as 0.6 per cent against the dollar to 104.635 yen, the first time it has been below 105 since November 2016. Investors later booked profits to leave the yen up 0.1 per cent at 105.19 yen per dollar.
The Swiss franc, another currency bought in times of market uncertainty, rose 0.2 per cent versus the dollar, although it fell against the euro.
The dollar dropped 0.3 per cent against a basket of currencies.