Asian shares flirt with nine-month low on mounting trade war fears
Asian stocks slumped to nine-month lows on Thursday on growing worries
the U.S. administration’s approach to trade is harming global economic
growth even as it appeared to be modifying its approach to curb Chinese
investments in U.S. technology firms.
U.S. oil prices hit a 3-1/2-year high as plunging U.S. crude stockpiles
compounded supply worries in a market already uncertain about Libyan
exports, a production disruption in Canada and Washington’s demands that
importers stop buying Iranian crude.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.25
percent to a nine-month low in early trade while Japan’s Nikkei shed
0.30 percent.
The U.S. S&P 500 lost 0.60 percent on Wednesday to one-month closing low.
MSCI’s broadest gauge of the world’s stock markets fell to its lowest
level in almost three months, on course to post its fourth month of loss
in the last five. Its emerging market index hit the weakest level since
mid-August.
In China, the markets have taken a battering as worries about a wobbly
yuan and the trade spat with the United States have left investors
bracing for a rocky final six months of the year.
That will keep traders focused on China stocks which were hit by
bruising sell-off on Wednesday, with blue chips slumping to their worst
loss in over a year.
Trump said on Wednesday he will use a strengthened national security
review process to thwart Chinese acquisitions of sensitive American
technologies, a softer approach than imposing China-specific investment
restrictions.
Although that lifted U.S. stocks initially, optimism quickly evaporated
after White House economic adviser Larry Kudlow said Trump’s announced
plan did not indicate a softened stance on China.
Markets remain anxious about Trump’s hard line approach to get better
trade deals, with early signs his stance may not only be backfiring but
also hurting the global economy.
Two U.S. major auto trade groups on Wednesday warned the administration
that imposing up to 25 percent tariffs on imported vehicles would cost
hundreds of thousands of auto jobs, dramatically hike prices on vehicles
and threaten industry spending on self-driving cars.
The move came after U.S. motorcycle maker Harley-Davidson Inc said
earlier this week it would move production for European customers
overseas to avoid retaliatory tariffs.
“Initially investors saw Trump’s moves as negotiation tactics to get
better deals. But now they are starting to worry about the damage to the
economy,” said Mutsumi Kagawa, chief global strategist at Rakuten
Securities.
“People have long thought the U.S. economy will eventually hit a
recession at some point. But there are growing worries Trump’s trade
policies may hasten that. The fear now is that ‘America First’ may
become ‘America Worst’,” he added.
The 10-year U.S. Treasuries yield dropped to 2.827 percent, edging near its May 29 low of 2.759 percent.
In worrying sign for some investors, the U.S. yield curve flattened
further, with the spread between two and 10 year yields shrinking to a
10-year low of 32 basis points, or 0.32 percent point.
Historically, the U.S. economy has tended to enter a recession after the
spread had shrunk below zero percent, inverting the yield curve.
The fall in U.S. bonds yields came despite inflationary pressure stemming from rising oil prices.
U.S. crude futures surged 3.16 percent on Wednesday, rising as high as
$73.06 a barrel, the highest since Nov. 28, 2014, on signs of tight
supply.
U.S. crude stocks fell nearly 10 million barrels last week while the
fall in Canadian exports helped drain supplies of heavy crude across
North America.
The U.S. demand on other countries to cut all imports of Iranian oil is
also seen as fuelling a shortage while a power struggle in Libya has
left it unclear whether the internationally recognised government or
rebels will handle oil exports.
U.S. crude futures last traded at $72.50 a barrel, down 0.37 percent in early Asian trade.
On the other hand, copper, seen as a barometer of the strength of global
economy because of its wide industrial use, hit a three-month low of
$6,692.5 a ton.
In the currency market, major currencies were treading water on uncertainties over the escalating trade frictions.
The euro was hit by concerns about political uncertainty in Germany
although Chancellor Angela Merkel’s coalition partner said it was not
seeking to break up the government.
The common currency stood at $1.1561, edging near an 11-month low of $1.1508 set a week ago.
The dollar changed hands at 110.26 yen, up slightly but well within its
narrow trading range over the past month. The currency pair is on course
to post its smallest monthly range in nearly fours this month.
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