Thursday 05.30 BST

What you need to know

  • Equities down in Asia as US-China trade war looms
  • Hang Seng drops 0.3 per cent but CSI 300 up by as much
  • Oil prices fall after Trump criticises Opec

Top quote

Global markets are bracing themselves as the deadline nears for the US to start imposing tariffs on $34bn of imports from China, in what will mark the first major shots fired in the trade war between the world’s two largest economies. 

Sean Callow, Westpac senior currency strategist, said markets have generally had enough time to price in the tariffs, but “for every investor who is worried about where this trade battle is heading, there is another who points out that this stage of the trade measures is not likely to have a large impact on corporate profits or growth in either the US or China”. However, he continued:

Mr Callow said it was too optimistic to simply brush aside this phase of US-China tariffs, especially considering US president Donald Trump’s June 18 statement threatening further tariffs on up to $400bn of additional China imports.

“We should take this threat very seriously, given Trump’s longstanding views on trade, his protectionist promises on the campaign trail and polling indicating his voter base remains with him into the November midterms,” he said.

Hot topic

Asia-Pacific equities were broadly down on Thursday as investors looked towards the looming implementation of tariffs. US markets were closed on Wednesday for the Independence Day holiday, but in Europe the pan-European Stoxx 600 index ended the session fractionally higher while the FTSE 100 fell 0.3 per cent in London.

China-focused stocks took the brunt of the damage. Hong Kong equities were once again lower with a drop of 0.9 per cent by the Hang Seng index. The Hang Seng China Enterprises index, which tracks large-cap Chinese companies, dipped 1.7 per cent.

The CSI 300 index of major Shanghai and Shenzhen-listed stocks was down 0.6 per cent while the Shanghai Composite index fell 0.9 per cent.

Tokyo’s Topix was down 1 per cent as industrials dropped 1.2 per cent and financials fell 1 per cent. In Seoul the Kospi was off 0.8 per cent.

But Sydney’s S&P/ASX 200 was up 0.5 per cent as telecoms stocks rose 1.4 per cent and financials climbed 0.8 per cent, although mining stocks were down 0.3 per cent.

Forex and fixed income

The US currency was down slightly in Asia with the dollar index, which tracks the greenback against a basket of peers, falling 0.1 per cent to 94.537. Japan’s yen firmed 0.1 per cent to ¥110.32 per dollar.

The onshore exchange rate for China’s renminbi, which is bound by a trading band of 2 per cent in either direction, was 0.1 per cent weaker at Rmb6.6365, but was still above a nadir touched earlier in the week amid mounting concerns over the US-China trade tension.

“As the US-China trade war rolls on, the threat to Asian trade volumes is likely to be increasingly evident on the Aussie dollar, a proxy for the regional mood and may also see the renminbi being allowed to soften further,” Mr Callow at Westpac noted.

Despite the tumult across equities markets in the region, sovereign bond markets were relatively unmoved with yields, which move opposite to price, on 10-year US Treasuries up 1 basis point at 2.84 per cent.

Commodities

Oil prices were down on Thursday after Mr Trump tweeted about Opec on Wednesday to repeat a threat that lower oil prices should be the quid pro quo for the security ties some members of the group enjoy with the US.

Brent crude, the international benchmark, was off 0.7 per cent at $77.68 a barrel, while US marker West Texas Intermediate was down 0.3 per cent at $73.82.

Gold was basically flat at $1,255.88 per ounce.

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