Asian stocks fall after China retaliates in trade war with US

Daniel Fowler
May 15, 2019

MSCI Asia ex-Japan -0.9%; Nikkei off 0.7%.

USA stocks tumbled on Monday after China announced retaliatory tariffs on United States goods, heightening fears of a full-blown trade war between the world's two largest economies that could cripple global economic growth. Hong Kong, Australia and Taiwan fell.

Over the weekend, US President Donald Trump offered mixed signals regarding his approach to trade negotiations with China. That helped lift USA stock futures 0.5%, through sentiment remained fragile.

Another sign of investor jitters, the VIX index, which measures how much volatility the market expects in the future, spiked 28.1% on Monday.

With Trump tweeting about meeting Xi in June, there is cautious optimism that both nations will reach a trade agreement that will end the tariffs that are negatively affecting many American corporations, the Chinese economy, and the global economy overall. The U.S. increases apply to Chinese goods shipped starting Friday, which will take about three weeks to cross the Pacific and arrive at U.S. ports.

Coca-Cola shares bubbled up 1.33% on Tuesday after analysts at Morgan Stanley turned bullish on the stock, while Ralph Lauren closed 3.69% softer despite posting a first-quarter sales and profits beat.

Trump said he was confident that China would come back to the table for a deal after he raised tariffs to 25 percent on $200 billion of Chinese products.

The Dow Jones Industrial Average plunged more than 600 points on Monday and the benchmark S&P 500 index suffered its biggest loss since January. "That weighs on the global economy and could then weigh on the USA economy".

The front part of the US Treasury yield curve, running from threemonth bills through to 10-year notes, inverted for the second time in less than a week.

Prices for US government bonds, which are considered ultra-safe investments, rose sharply, sending yields lower. They were trading around $9 a bushel last month and are now at their lowest price since December 2008.

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That move underscored worries about the economic impact of a trade war - a sustained inversion of that part of the yield curve has preceded every US recession in the past 50 years.

On Monday, some traders were concerned that China, the largest foreign US creditor, could dump Treasuries to counter the Trump administration's hardening trade stance.

With more than 20 years' trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa.

But that just takes into account the increased cost of buying things produced in China.

"That would expand its balance sheet but it would allow it to neutralise China's efforts to disturb USA financial markets".

The dollar rose to 109.64 Japanese yen from 109.34 yen late Monday.

Worries over an escalating trade war had hit commodity markets, but improving sentiment sent US crude 0.1% higher to $61.11 a barrel. Brent crude, the global standard, gained $1.01 to $71.24 a barrel.

Gold is another investment that tends to do fade when investors are feeling more optimistic, and it fell $5.50 to settle at $1,296.30 per ounce.

Financial shares were the worst hit on the ASX, collectively falling 1.78 per cent, as all four big banks slipped and NAB traded ex-dividend.

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