- Asian stocks fell on Monday as traders followed Wall Street’s example and braced themselves for a prolonged trade war.
- The worldwide sell-off reflects fears of slower economic growth and rising geopolitical tensions, as China plans to respond to a US tariff hike last Friday by raising duties on American imports.
- “Market sentiment remains very fragile,” said one analyst.
Traders in Asian stocks followed Wall Street’s example and braced themselves for an enduring trade war.
After major indexes in the US plummeted at least 2% on Monday, Chinese and Japanese stocks followed suit. European equities and US futures are posting relief rallies on Tuesday morning.
“Market sentiment remains very fragile,” said Jasper Lawler, head of research at London Capital Group. “Investors will want to see concrete evidence of progress after Trump’s 180-degree turn last week spooked the markets.”
The implications of a US-China trade war include a potential reduction in global economic growth and higher prices for businesses and consumers. The fallout is likely to spill over into other equity markets too.
“Risks for now seem very much skewed to the downside until we see some kind of equilibrium achieved again,” said Neil Wilson, chief market analyst for Markets.com.
Here’s the market roundup as of 9.20 a.m. (4.20 a.m. ET):
- Asian stocks dropped on Monday. The Shanghai Composite index fell 0.7%, Hong Kong’s Hang Seng slid 1.4%, and and Japan’s Nikkei slumped 0.6%.
- European equities rallied in early trading. The Euro Stoxx 50 rose 0.5%, Germany’s DAX crept up 0.3%, and Britain’s FTSE 100 climbed 0.7%.
- Trade war fears spooked US investors, sending the Dow Jones Industrial Average and S&P 500 down at least 2%. The Nasdaq plunged 3.5%. US stocks are poised to open higher on Tuesday. Futures on those indexes are up at least 0.3%.
- Bitcoin has surged about 15% to $US8,150. There are several possible reasons for the price spike.
China plans to raise duties on around $US60 billion of American imports on June 1, in retaliation to the US raising tariffs from 10% to 25% on $US200 billion of Chinese imports on Friday.
The Trump administration is preparing to expand tariffs to a further $US300 billion of Chinese goods, although the president hasn’t ruled out a trade deal and plans to meet his Chinese counterpart at next month’s G-20 summit.
“You never really know, right?” Trump replied when asked about the prospect of a trade agreement, according to Bloomberg. “But I have a feeling it’s going to be very successful.”
“Markets are likely to take Trump’s words with a few pinches of salt, given the many situations in the past which have not resulted in the easing of trade tensions,” said Lukman Otunuga, a research analyst at FXTM.