Trump’s latest sabre-rattling on trade tramps on Asian shares

Tokyo — Asian shares came under renewed pressure on Friday, as a report that US President Donald Trump was preparing to step up a trade war with Beijing sent Chinese stocks lower and partially erased gains made in this week’s global rally.

Many emerging market currencies were also frail after Argentina’s peso sank on Thursday despite the central bank’s interest rate hike.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.8%, for monthly drop of 1.6%.

The index has underperformed the MSCI all-countries world index (ACWI), a gauge of the world’s 47 markets, for four months in a row as China-US trade worries hit Chinese shares.

The Shanghai composite index dropped 1.1% to edge near a two-year low hit earlier in the month.

While the official purchasing managers’ index (PMI) on Friday showed growth in China’s manufacturing sector unexpectedly picked up in August after a two-month slide, that hardly improved the mood as investors expect more damages from the trade frictions down the road.

Japan’s Nikkei dropped 0.8%. US S&P500 e-mini futures fell 0.05%. On Thursday, the S&P 500 lost 0.44% from Wednesday’s record close of 2,914.

Hostile comments from Trump on trade poured cold water on the rally in global shares that started in the middle of the month.

Bloomberg reported that Trump said he was ready to impose more tariffs on $200bn worth of goods from China as soon as the public comment period on the plan ends next week.

“So far, Trump has carried out what he said he would do,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

“Even though there are some doubts the US trade representative could come up with new tariffs so quickly, I suspect worries about a trade war will start to eclipse optimism based on strong US economic data.”

Trump also threatened in an interview with Bloomberg on Thursday to withdraw from the World Trade Organisation if “they don’t shape up” — a move that would further undermine one of the foundations of the modern global trading system.

In addition, he said the European Union’s proposal to eliminate automotive tariffs is not good enough and called its trade policies “almost as bad as China”.

Those remarks dispelled any positive sentiment following negotiations over the North American Free Trade Agreement (Nafta).

Currencies

The cautious mood helped lift the yen, which rose 0.6% on Thursday, its biggest daily rise in about six weeks.

In early Friday trade, it changed hands at ¥110.98 to the dollar.

The euro traded flat at $1.1665, having shed 0.33% in the previous session.

The common currency has recovered from a 13-and-a-half-month low of $1.1301 hit in mid-August but looks set to end the month little changed from end-July.

Emerging market currencies had less luck, with currencies relying on foreign capital to finance their current account deficit hit the hardest.

The peso, the world’s worst-performing currency this year due to Argentina’s poor economic health, fell 10% on the day, bringing its month-to-date losses to 27%.

Argentina’s central bank held an emergency meeting on Thursday where it voted unanimously to raise its benchmark rate to 60% from 45%. But the unexpected move failed to stabilise the peso.

That knocked down the Brazilian real to near its record low touched in September 2015. It is down almost 10% this month.

The Turkish lira, which has been hit by concern over President Tayyip Erdogan’s interference in monetary policy and his diplomatic spats with Washington, also slipped towards record low marked about two weeks ago.

The lira stood at 6.740 to the dollar in early Friday trade, having fallen 11% so far this week.

In Asia, the Indonesian rupiah fell to a three-year low even as the country’s central bank said it was “decisively” intervening to support the currency.

The rupiah has lost 1% so far this month.

Oil prices slipped slightly after hitting their highest levels in more than a month the previous day on growing evidence of disruptions to crude supply from Iran and Venezuela and after a fall in US inventories.

Brent crude oil dropped 0.3% to $77.51 a barrel from Thursday’s settlement at $77.77. US crude stood down 0.3% at $70.04 a barrel.

Reuters

Source: businesslive.co.za