Global shares suffer as trade tiff escalates

European shares opened lower as investor angst about the outlook for economic growth filtered through to European stocks.

The Stoxx 600 slipped 0.3% and Germany’s DAX was down 0.5% while France’s CAC 40 declined 0.7%.

“This all shows how quickly trade tensions could escalate between the US and China,” said Derek Halpenny, European head of global markets research at MUFG Bank.

“This may not be the end of the matter as US officials are looking at another $100bn of Chinese imports on which they could impose tariffs if desired,” he said.

A potentially destabilising vote in German Chancellor Angela Merkel’s governing coalition partner over a migration plan could put further pressure on European shares.

In commodity markets, Brent crude futures fell to a six-week low of $72.45 a barrel on Monday on worry about a hit to global growth from the trade dispute and after reports that top suppliers Saudi Arabia and Russia would likely agree to increase production at the June 22 Opec meeting in Vienna.

US light crude oil hit a two-month low of $63.59 a barrel before edging back to $64.00, down $1.06, by 7.55am GMT.

Oil cartel Opec, which is de facto led by Saudi Arabia, and some allies including Russia have been restricting output since the start of 2017.

They will meet in Vienna on June 22 to decide future production policy.

Room for compromise

China has hiked its list of US goods on which it said it would slap tariffs 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.

Some analysts, however, believe there is still room for compromise, suspecting Trump’s announcement was a negotiating tactic to wring faster concessions from Beijing.

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

The immediate fallout from the dispute was limited in currency markets. A mild reaction in the dollar suggested that the exchange of blows was anticipated in some markets.

The dollar index versus a basket of six major currencies crept up 0.1% to 94.862.

The index was close to 95.131, a peak scaled on Friday, thanks to the dollar soaring more than 1% last week after the US Federal Reserve gave a hawkish signal on interest rates while the European Central Bank (ECB) struck a dovish tone.

The euro traded at $1.1565, not far from a recent two-week low of $1.1543 after the ECB suggested it would hold off raising interest rates through the summer of next year.

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.

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

“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.”

Reuters