World stocks bear the brunt of US-China trade tiff and Trump’s legal woes

London — World stocks came under pressure on Thursday as new tariffs took effect in the US-China trade war and markets speculated about US President Donald Trump’s position following legal rulings against two former advisers.

The MSCI world equity index, which tracks shares in 47 countries, was 0.1% lower by 8.22am GMT, while a rise across defensive sectors helped Europe’s Stoxx 600 eke out a 0.1% gain.

Stocks were subdued as the US and China implemented 25% tariffs on $16bn worth of each other’s goods, despite ongoing talks. The world’s two biggest economic powers have now slapped tit-for-tat tariffs on a combined $100bn worth of products since early July, with more in the pipeline, adding to risks to global economic growth.

Caroline Simmons, deputy head of the UK chief investment office at UBS Wealth Management, cited such concerns as a reason for paring back an overweight on global equities to a very small position. “We’ve got trade conflicts, and sanctions, in Turkey and Russia, so there are a few things going on that we were a little nervous about,” she said, though her firm still saw upside to equity markets, with good fundamentals.

The automotive sector, particularly sensitive to tariff developments, was the worst performing in Europe, down 0.7%.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%. Hong Kong’s Hang Seng index stumbled 0.5%, while Chinese blue-chips gained 0.4%.

Legal woes

While investors are looking ahead to see how increasing trade barriers between China and the US might affect corporate earnings, political turmoil also weighs on the issue.

Trump’s former lawyer Michael Cohen pleaded guilty to campaign-finance violations on Tuesday and former campaign manager, Paul Manafort, was found guilty on charges of tax and bank fraud. Investors are considering whether the twin setback will hurt the president and his Republican Party’s prospects in the mid-term elections.

This weighed on Wall Street overnight and the market ended mixed despite the S&P500 clocking its longest bull run in history. E-Minis for the S&P 500 were also subdued, trading 0.1% lower.

Cohen’s plea deal does not mean the president has been implicated in anything, press secretary Sarah Sanders said at a White House briefing.

“While the [legal issues] shouldn’t substantially alter the stock market landscape, money managers and analysts say the developments raise the likelihood of further turbulence ahead for Mr Trump heading into the mid-term elections,” said James McGlew, Perth-based analyst at stockbroking firm Argonaut.

Political tensions were not limited to the US. Australian shares slipped 0.3% after several senior ministers tendered their resignations on Thursday and demanded a second vote on Prime Minister Malcolm Turnbull’s leadership. The Australian dollar fell 0.8% for its second straight day of declines.

Dollar bounce

The political uncertainty helped the dollar snap a five-day losing streak, with the greenback in demand after the US Federal Reserve suggested that a rate hike for September was on the cards.

The dollar index, which measures it against a basket of major currencies, added 0.3% to 95.397, pulling off its lowest in three weeks. The euro was off 0.4% at $1.1556, not far from Wednesday’s two-week high of $1.1623. The yen weakened 0.2% to 110.78 per dollar.

A stronger dollar put pressure on commodities, with Brent crude, the international benchmark, easing to $74.41 while US crude also declined to $67.67.

US gold futures for December delivery fell 0.7% while spot gold dipped 0.6% to $1,188.16 an ounce. Copper fell 1.5%.

Reuters