Hong Kong: Asian markets extended last week’s worldwide plunge as investors fret that Donald Trump’s controversial tariffs on $60 billion of Chinese goods will spark a trade war that would hammer the global economy.
The US move to impose levies, claiming China is breaching intellectual property rights, sparked a rout of equities across the world, while China warned it was “not afraid of a trade war”.
US Treasury Secretary Steve Mnuchin said at the weekend that Trump was not ready to back down but added that he had “very productive conversations” with Chinese officials on the issue.
Trump’s announcement came weeks after he unveiled tariffs on the import of steel and aluminium products as he presses on with his “America First” protectionist programme.
Beijing did not rule out cutting back its purchases of US Treasuries, which are crucial to keep the wheels of the world’s top economy greased. China is the biggest buyer of Treasuries.
Wall Street’s three main indexes tumbled for a second successive day on Friday, and Asian investors — who fled to the hills last week — continued to sell on Monday.
“How China escalates will determine the pace of play, but Chinese retaliation so far has been more genial than initially thought, and they have made efforts for a diplomatic solution,” said Stephen Innes, head of Asia-Pacific trading at OANDA.
“Although China is willing to negotiate and is likely to offer compromises, uncertainty and the fear of escalation will likely hold back market sentiment in the short run.”
Adding to the negative sentiment was news that Trump had installed a hardline hawk, John Bolton, as his national security adviser, stoking geopolitical worries.
Oil extends gains
In early trade Hong Kong was down 0.3 percent, Tokyo went into the break 0.4 percent lower and Shanghai sank more than one percent. Singapore fell 0.5 percent and Sydney gave up 0.6 percent while Wellington was one percent off.
Taipei, Manila and Jakarta also fell but Seoul climbed 0.2 percent as it emerged that South Korea and the United States have reached an understanding on revising their free-trade agreement and on steel tariffs.
Fears of a trade war continue to weigh on the dollar, which was struggling below 105 yen — its lowest level since November 2016 when Trump was elected.
The weaker dollar provided support to oil prices, though, as it makes the commodity cheaper for anyone holding other currencies.
Both main contracts ticked up on Monday, having surged last week on speculation that Bolton will press Trump to tear up the Iran nuclear deal, which could spark turmoil in the Middle East.
“Nothing like geopolitics to put a bid back into oil,” said Greg McKenna, chief market strategist at AxiTrader.
“And that is exactly what we’ve seen in recent days with John Bolton being appointed as the incoming NSA for President Trump. Certainly, the administration has taken a decidedly hawkish tilt and a read through Bolton’s twitter feed supports his hawkish credentials.”
China on Monday launched yuan-denominated oil futures contracts, marking the first time foreign investors will have access to the assets in the country as the world’s top crude importer seeks greater influence over global prices.
However, analysts said they are unlikely to challenge New York and London-based futures in the short-term owing to Chinese capital controls and the entrenched position of the dollar-denominated contracts.
Key figures around 0230 GMT
Tokyo – Nikkei 225: DOWN 0.4 percent at 20,535.88 (break)
Hong Kong – Hang Seng: DOWN 0.3 percent at 30,217.06
Shanghai – Composite: DOWN 1.2 percent at 3,114.23
Dollar/yen: UP at 104.93 yen from 104.78 yen at 2100 GMT Friday
Euro/dollar: UP at $1.2370 from $1.2357 at 2100 GMT
Pound/dollar: UP at $1.4161 from $1.4136
Oil – West Texas Intermediate: UP 48 cents at $65.36
Oil – Brent North Sea: UP 51 cents at $70.96 per barrel
New York – Dow: DOWN 1.8 percent at 23,533.20 (close)
London – FTSE 100: DOWN 0.4 at 6,921.94 (close)