World shares tripped up by fears of US tariff escalation
CHINA’S SCOPE TO RETALIATE IS SURPRISINGLY LIMITED IN WAKE OF SWINE FLU, ANALYST SAYS
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Stock markets headed south yesterday as investors took fright at news that Washington was set to announce a new round of tariffs on Chinese goods in the latest escalation of their trade conflict.
US President Donald Trump’s expected announcement of new tariffs on $200 billion in Chinese goods drew an immediate threat of reprisals from Beijing.
Trump took to Twitter early yesterday to say: “If countries will not make fair deals with us, they will be ‘Tariffed!’”
The growing trade conflict between the world’s two largest economies has long unnerved investors who fear an escalation could eventually whack global growth, while talks between the two countries have failed to make much headway.
European stocks fall
The pan-European STOXX 600 index fell as much as 0.2 per cent, while Germany’s DAX, home to large exporters and carmakers, dropped half a per cent. France’s CAC 40 and Britain’s FTSE 100 each fell 0.3 per cent. Last week, Europe’s STOXX 600 had enjoyed its best weekly gain since July as the Turkish central bank’s interest rate rise brought a broad relief rally, but the mood was less buoyant yesterday.
The falls in Europe followed weakness across Asian markets.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.2 per cent, snapping three straight sessions of gains. The MSCI world equity index, which tracks shares in 47 countries, remains more than 5 per cent off its record high touched in January, and down 0.8 per cent in September.
“On the Chinese side, Mr. ■ Trump has burnt a lot of political capital so it’s hard to see how talks can resume if Mr. Trump goes ahead on the $200 billion,” Freya Beamish, chief Asia economist at Pantheon Macroeconomics, told the Reuters Global Markets Forum.
“China’s scope to retaliate is surprisingly limited, however, especially since the outbreak of swine flu, which will anyway push up CPI inflation,” Beamish said, referring to the deadly swine fever strain that is seen impacting Chinese meat prices.
The S&P 500 e-minis fell 0.1 per cent, indicating Wall Street would open slightly weaker.
Further escalation likely
Beamish doubted whether the United States would slap 25 per cent tariffs on $200 billion of Chinese imports, as the Trump administration has said it is considering, and the Wall Street Journal reported the tariff level would probably be about 10 per cent.
Market watchers reckon further escalation is likely, although some investors think Trump’s tariff threats are largely rhetoric aimed at a domestic audience before the midterm elections in November. They expect tensions to ease once the vote is out of the way.
“I think the market has digested more or less all this rollercoaster with tariffs and I think [Trump is] trying to finish off with this matter until November,” said Dimitrios Stefanopoulos, portfolio manager at Alpha Trust in Greece.
The dollar fell yesterday, suggesting investor nervousness was limited. The greenback index slipped 0.2 per cent at 94.725.
intra-day low hit by the Indian rupee against the US dollar yesterday
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worth of Chinese goods could be hit with new US tariffs
drop in MSCI’s broad index of Asia-Pacific shares