Equity markets down as US-China tension escalates

London/Hong Kong — European shares slipped on Tuesday as simmering political tensions between the US and China escalated, while concerns over a deadlock on further US fiscal stimulus drove the dollar towards a two-year low against its rivals.

A weaker opening for the region’s blue-chip euro Stoxx 50 weighed on Asian stocks with MSCI’s broadest index of Asia-Pacific shares excluding Japan giving up early gains to trade flat.

US stock futures were down 0.2%, pointing to a weaker start on Wall Street and edging back slightly after tech stocks had pushed sister index the Nasdaq to a record high on Monday.

Underpinning much of the equity market weakness was a fresh instalment of the escalating spat between the US and China, with US President Donald Trump announcing further restrictions overnight on tech giant Huawei Technologies.

Amid concern about the close ties between Beijing and the maker of mobile phones and other tech, the Trump administration moved to limit its access to commercially available chips, a move set to disrupt global supply chains.

“Just when you thought things were cooling off between the US and China, Washington goes and pokes the dragon,” said financial analyst Connor Campbell at spreadbetters Spreadex. “Their trade war anxieties re-ignited, the reaction from the European indices was predictable.”

Amid a sea of red for European equities, Britain’s blue-chip FTSE 100 stood out, down 0.8%. Among the losers was mining company BHP Group after profit missed forecasts and it warned of a slowing global economy outside China.

In Asia, Korean stocks fell 2%, with Chinese blue chips flat and Japan’s Nikkei dipped 0.2%.

Investors had to balance the moves against Huawei with Trump’s comments that China was meeting its obligations under the trade deal, pushing the Chinese currency to a more than five-month high against the dollar.

In currency markets, the overarching theme was the broadening dollar weakness story, which weighed on European government bond yields and lifted the prices of alternative safe-haven assets such as gold.

The latest blow to the struggling dollar came from disappointing manufacturing and mortgage data with the greenback hitting a fresh 5.5-year low against the Swiss franc and nearing a two-year low against a basket of its rivals, hit earlier this month.

In bonds, benchmark 10-year US treasuries were last down about one basis point at 0.6671. In Europe, German government bond yields held steady at a three-day low, eyeing range-bound trade ahead of crucial flash purchasing managers’ index data on Friday.

In commodities, oil prices edged lower, giving up a slice of their recent gains after oil cartel Opec and its allies (Opec+) said it was almost fully complying with output cuts.

Brent crude was down 3c, or 0.1%, at $45.34 a barrel, after gaining 1.3% on Monday. US crude was down 0.3%, at $42.78 a barrel, having risen 2.1% in the previous session

Safe-haven gold closed higher after Berkshire Hathaway also disclosed a stake in Barrick Gold, one of the world’s largest mining companies.

Spot gold added 1% to once again breach the $2,000/oz barrier, trading at $2,006 an ounce.

Reuters