- Last night’s global stock rout which extended into Asia has intensified in afternoon trade.
- Analysts say the risks of a stock bear market are increasing.
- Futures markets on the FTSE100 and the S&P500 are pointing sharply lower.
The escalating US-China trade war which rattled global markets overnight has extended into Asian markets — and it’s getting ugly.
The S&P500 slumped by more than 2.5% after President Trump announced plans to hit China with a 25% import tariff on around $US60 billion worth of goods.
That followed falls of more than 1% in the UK and Europe, as skittish investors switched out of stocks into less risky assets.
Demand for bonds saw benchmark US 10-year bond yields fall by 8 basis points overnight to around 2.8%, while money also flowed into the safe-haven Japanese yen.
And a stronger currency was one factor which weighed on Japan’s export-heavy Nikkei stock index when markets opened this morning.
Japanese stocks immediately slumped and a short time ago the Nikkei was down more than 4% — it’s worst one-day fall since the market meltdown on February 6.
According to AxiTrader’s Greg McKenna, the price action seen in global stocks over the last 24 hours is cause for some serious concern.
“Last night’s last two hours of trade on the New York Stock Exchange was indicative of an evaporating bid. The market finished near the lows and we’ve seen an extension of that selling today,” McKenna said.
“There’s probably a rising chance that we see stock prices globally enter a bear market. That would mean a further 10% below the February lows.”
“The reason is uncertainty. Just when traders were gearing up for an acceleration in the US economy — when it looked like the global economy might have one or two years of genuinely synchronised growth — we’ve had the spectre of inflation. Now Trump’s tariffs and a trade war materially increase uncertainty.”
Locally, the ASX200 has been unable to recover from this morning’s slump and looks set to close more than 2% lower. South Korea’s KOSPII index is also down more than 2%.
Attention then turned to stocks on mainland China when the Shanghai composite index opened at 12:30pm AEDT. And it was a bloodbath, with stocks down more than 3% heading into the lunch break.
The result was perhaps somewhat predictable, given China’s direct involvement in a trade war with a country that it sells far more goods to than it buys in return.
DailyFX senior strategist Ilya Spivak said further political developments in the US have increased the tension among nervous investors.
“The replacement of H.R. McMaster with John Bolton has understandably unnerved markets that were already shell-shocked by the US’ imposition of punitive tariffs against China. Bolton has advocated pre-emptive military action against Iran and North Korea,” Spivak said.
“China’s plans to retaliate against the US with tariffs of its own surely aren’t helping either, warning of potentially significant disruptions in the supply chain running squarely through the region.”
Stocks in Hong Kong aren’t faring much better than their mainland counterparts — a short time ago down by around 2.8%.
India’s Nifty50 is more than 1% lower while Indonesia’s IDX30 index is down more than 2%.
Bitcoin — which crashed below $US6,000 amid February’s global stock rout — has been holding steady at around $US8400 in Asian trade, although prices dipped sharply overnight amid report of a crackdown on major Japanese exchange Binance.
From a technical perspective, McKenna said the 200-day moving average for the S&P500 — at 2,583 — may provide the next key level of support. On the ASX200, a break below 5,785 could see a fall to 5,655.
Spivak added that signs point to another round of stock selling on global markets heading into the end of the week.
“With relatively little by way of potent economic news-flow still on tap for the week, traders might be inspired to avoid weekend risk in such a tumultuous environment — leading to further liquidation,” he said.
“Indeed, FTSE100 and S&P500 futures are pointing decidedly lower before London and New York come online. That’s probably most helpful for the Japanese yen and gold prices as bond yields drop.”