President Trump’s pledge to raise import taxes — 25% for steel and 10% for aluminium — has sparked fears of an escalating trade war, as other countries threaten to retaliate.
And US stocks immediately slumped on the news, with the Dow initially falling by more than 500 points before closing 420 points lower — a fall of 1.7%.
The heavy selling has extended into Asian markets today, led by falls on Japan’s Nikkei Index which plummeted at the open and is down by around 2.7% in afternoon trade.
The ASX200 hasn’t been spared — falling by as much as 1% before a small rally this afternoon.
It means the local index is still on track for its third straight day of losses, with heavier falls in the resources and materials sectors.
Here’s the afternoon scoreboard for the Asian region as at 3pm AEDT:
Australia ASX 200 5912.00 , -1.03%
NZ NZX 50 8294.15 , -0.58%
Japan TOPIX 1703.94 , -2.08%
Shanghai Comp 3263.18 , -0.32%
Shenzhen Comp 1825.99 , -0.44%
HK Hang Seng 30573.00 , -1.52%
Sth Korea KOSPI 2396.55 , -1.27%
Sinagpore STI 3479.71 , -0.97%
Taiwan TAIEX 10691.2 , -0.88%
Philippines PSI 8371.76 , -1.11%
Indonesia JKSE 6566.22 , -0.60%
Malaysia KLCI Index 1858.17 , -0.14%
Thailand SET 1823.13 , -0.38%
India Nifty 50 10458.35 , -0.33%
S&P 500 Futures 2671.5 , -0.25%
According to DailyFX.com senior strategist Ilya Spivak, the overnight developments marked a significant shift in the market’s reaction to Trump administration policies.
“Since Mr Trump’s election, the markets have focused almost entirely on the pro-growth part of his agenda – tax cuts and an increase in government spending – while ignoring protectionist tendencies as mere rhetoric,” Spivak said.
“His actions today suggest he is prepared to act, which raises the specter of a trade spat that might derail the coordinated global growth narrative that has been the base case scenario for investors since the beginning of the year.”
“Not surprisingly, the result has been broad-based risk aversion.”
Falls on Japan’s export-heavy index were exacerbated by another round of strength in the safe-haven Japanese yen.
A short time ago, USD/YEN was trading near a multi-year low at beneath 106.
AxiTrader’s Greg McKenna said last night’s tariff announcement is reflective of an unsettling geo-political trend which has the capacity to rattle markets over the longer-term.
“This is potentially an under appreciated regime shift we are seeing in markets and the global economy over the last week, with Chinese President Xi moving toward a more totalitarian position while at the same time Russian President Putin (and his foreign minister) have become extremely belligerent over nuclear weapons,” McKenna said.
“Throw in the steel and aluminium tariffs President Trump thinks he can impose in isolation, and we have a recipe for the global market and political backdrop that traders and investors have assumed this century being utterly shattered,” he added.
Amid that backdrop, McKenna said implied volatility will be repriced in the near-term, which will impact the allocation towards riskier assets — which include stocks and the AUD.
“February’s market funk may have been the entrée to a bigger fall in stocks, bonds, the Aussie dollar and other risk assets,” McKenna said.
“It’s a risk, not a certainty. But that risk comes with enough uncertainty for a few chips to be taken off the table unless President Trump, Gary Cohn, or Steve Mnuchin clarify what the US is aiming at.”
Despite the increased uncertainty, McKenna said he’s not overly pessimistic about the direction of markets – at least in the short-term.
“The issues I have raised are very long term and will impact markets over a multi-year time frame.” McKenna said.
“Right now though my only bet really is uncertainty and volatility are rising and that the more to reduce risk could become self perpetuating.”