World markets steady after Trump’s trade-tariff threat

London — World markets steadied on Tuesday after being rattled by US President Donald Trump’s latest threat to ramp up trade tariffs on China, though Turkey’s lira was back in trouble as concerns about its politics erupted again.

It was a calmer start from Europe’s main bourses after Trump’s threat to ratchet up tariffs on hundreds of billions of dollars of Chinese goods triggered the biggest sell-off in European equities since March.

London dipped 0.2% as it had to play catch-up after a long weekend, but Frankfurt, Paris and the pan-European Stoxx 600 index all flitted between gains and losses as more normal service resumed.

Some investors are holding out hope that the tariff threats are a negotiating tactic, especially as Beijing confirmed its top negotiator, vice-premier Liu He, would go to Washington on Thursday and Friday as planned.

MSCI’s broadest global and Asian indicies had largely held their ground overnight, though Japan’s Nikkei did take a delayed 1.5% hit, having been closed for over a week. Asia tumbled 2% on Monday and Chinese markets had suffered their worst drop in more than three years.

“We expect the situation to de-escalate as the issue seems solvable and Liu He, China’s lead negotiator, is continuing with his plans to travel to Washington DC for talks this week,” said Oxford Economics economist Louis Kuijs. “Nonetheless, the probability of renewed escalation of the US-China trade war has risen substantially, which would be a drag on their respective economies, especially on China.”

China’s yuan had recouped most of its early losses against the dollar by the end of trading there as investors largely digested the situation. The offshore yuan [renminbi]clawed as high as 6.7628 per dollar at one point, trimming the intra-day loss to six points in percentage from the previous late night close of 6.7622.

Lira pressure

There was plenty more keeping traders busy too. Australia’s dollar jumped almost 1% to a one-week top of $0.7048, after the country’s central bank kept rates on hold, wrongfooting some who had expected it to cut.

Other major currencies remained confined to well-trodden ranges, with the euro trading virtually flat at $1.1212 ahead of new European Commission economic forecasts and the dollar holding steady at ¥110.63.

In emerging markets, though, the Turkish lira was back under heavy fire after the country’s elections board ruled to scrap and re-run Istanbul elections. It slid 1.5% past the 6.15 per dollar, which also sent government bonds tumbling.

“The rule of law is under scrutiny by markets,” UniCredit emerging-market forex strategist Kiran Kowshik said. “It is also clear that Turkish reserves are depleted and there are questions about whether Turkey can weather its immediate challenges without an external anchor, such as the International Monetary Fund (IMF).”

In the commodity market, oil futures traded steady to higher on Tuesday as US sanctions on crude exporters Iran and Venezuela kept supply concerns alive. US West Texas Intermediate (WTI) crude futures edged up to $62.34 a barrel while Brent crude oil futures were little changed at $71.23. 

Reuters