Asia stocks slump, bonds rise; yen climbs past 105
Asian stocks followed their US counterparts lower after President Donald Trump’s decision to slap tariffs on China heightened concern a trade war could hurt global growth. The yen climbed to its strongest in over a year.
Japan’s Topix index slumped 2.5 per cent and shares in Australia and South Korea also dropped. US stock futures traded lower after the S&P 500 Index sank 2.5 per cent, the biggest drop in six weeks. As investors dumped stocks, they rushed to the safety of Treasurys, where yields fell back toward 2.8 per cent, and the yen, which jumped past 105 per dollar for the first time since November 2016.
The sell-off began after Trump instructed US Trade Representative Robert Lighthizer to levy tariffs on at least US$50 billion in Chinese imports. Subsequently, China announced plans for reciprocal tariffs on US$3 billion of imports from the US, including products from steel to pork. Meanwhile, Trump said he is replacing White House National Security Adviser H.R. McMaster with John Bolton, a former US Ambassador to the United Nations, in the latest shake-up of his administration.
Investor fears of escalating trade tensions are being realised as the US tariffs have already sparked a reciprocal response from China. Traders had already been bracing for the possibility of slowing economic growth as the Federal Reserve reiterated its commitment to further interest-rate increases after Wednesday’s hike. Furthermore, the US president’s continued shake up of his administration’s top ranks adds an additional level of uncertainty to the current geopolitical environment.
“It’s a significant step in escalation in trade tensions between the US and China,” said Paul Eitelman, senior investment strategist at Russell Investments. “The biggest watchpoint from here is how China responds to this and any potential escalation that creates going forward.”
Elsewhere, oil recovered from earlier declines, rising toward $65 a barrel. Gold edged higher.
The Bloomberg Dollar Spot Index fell less than 0.05 per cent. The Japanese yen rose 0.2 per cent to 105.06 per dollar. The euro rose 0.2 per cent to $1.2324.
The yield on 10-year Treasuries fell one basis point to 2.81 per cent. Japan’s 10-year yield declined one basis point to 0.033 per cent. Australia’s 10-year yield fell four basis points to 2.667 per cent.
West Texas Intermediate crude rose 0.5 per cent to $64.64 a barrel. Gold rose 0.2 per cent to $1,332.33 an ounce. LME copper dipped 1.4 per cent to $6,695.00 per metric ton.