Asian shares tumble as US-China trade tension intensifies

Tokyo/Sydney — Asian shares fell on Monday after US President Donald Trump cranked up trade tension by going ahead with tariffs on Chinese imports, prompting Beijing to respond immediately in kind.

The fear of a global trade war added to pressure on oil prices, which extended Friday’s big fall, while the dollar retreated from almost three-week highs against the safe-haven yen.

MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 0.4% to its lowest level since May 31.

Financial markets in China and Hong Kong were closed for Dragon Boat festival holiday. South Korea’s Kospi index slipped 0.5% while Australian shares eased 0.1%. Japan’s Nikkei sank 0.9% as worry over growing protectionism overshadowed stronger than expected export data.

US E-mini S&P futures were down 0.5% in early trade, suggesting a weaker start on Wall Street.

“The on-again off-again possible global trade war is looking to be back on again as the US and China announced tariffs on each other’s imports,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

“This looks set to be the main theme that investors will focus on … with any further escalation in tension adding to the downside risk.”

Trump announced hefty tariffs on $50bn of Chinese imports on Friday, laying out a list of more than 800 strategically important imports from China that would be subject to a 25% tariff starting on July 6, including cars.

China said it would respond with tariffs “of the same scale and strength” and that any previous trade deals with Trump were “invalid”.

The official Xinhua news agency said China would impose 25% tariffs on 659 US products, ranging from soybeans and cars to seafood.

China’s retaliation list was increased more than sixfold from a version released in April, but the value was kept at $50bn, as some high-value items such as commercial aircraft were deleted.

However, many market watchers believe there is still room for compromise, suspecting Trump’s announcement was a negotiating tactic to wring faster concessions from Beijing.

Limited impact?

Analysts say the direct impact of the tariffs may be limited, especially for the US economy, which is in strong shape.

But Asia’s other trade-reliant economies and companies plugged into China’s supply chains are worried they will suffer collateral damage if world trade slows down, hurting global growth and dampening business confidence.

Shares of Japanese construction equipment makers Komatsu and Hitachi Construction Machinery tumbled 3.7% and 3.4%, respectively. Both are vulnerable to any downturns in Chinese and global capital spending.

“There are trade frictions not only between the US and China but also between the US and its allies. Trump could put more pressure on other countries like Japan and NATO courtiers,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo.

“So far investors have been escaping to hi-tech shares and small cap shares. After all, money is still abundant. But investors should be cautious.”

In the currency market, the dollar was supported for now as the euro has lost steam after the European Central Bank (ECB) had suggested on Thursday it would hold off raising interest rates through the summer of next year.

The euro traded at $1.1587, not far from a two-week low of $1.1543 set on Friday.

The dollar eased to ¥110.33, having hit a three-week high of ¥110.905 on Friday.

The Japanese currency stayed resilient following a deadly earthquake that struck Western Japan, including Osaka, the country’s second largest urban area.

The Australian dollar, a liquid hedge for risk, slipped to a six-week trough while its New Zealand cousin fell to the lowest since end-May.

Oil prices were under pressure on the fear of increased supply as two big producers — Saudi Arabia and Russia — have indicated they were prepared to increase output.

Oil cartel Opec, Russia and other producers are due to meet in the Austrian capital on June 22-23.

US crude futures took an additional hit also as China’s retaliatory tariffs included crude oil.

US crude futures dropped 2.04% to $63.76 a barrel, briefly touching their lowest levels since April 10.

Brent fell 1% to $72.67.

Reuters