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Equities, yuan plunge as Trump escalates trade war with China
HONG KONG, Aug 26, 2019 (BSS/AFP) – Asian equity markets tanked and the
yuan hit an 11-year low Monday after Donald Trump ramped up his trade war
with China by imposing more tariffs on more than half-a-trillion dollars
worth of imports.
The decision on Friday stunned investors, who ran for the hills, hammering
European and Wall Street stocks, while safe havens such as the yen and gold –
– go-to assets in times of turmoil and uncertainty — surged.
The move, which also came with an outburst against China by the American
president and a call for US firms to leave the country, overshadowed a
broadly dovish speech by Federal Reserve boss Jerome Powell but one that fell
short of Trump’s demand for deep interest rate cuts.
Friday’s tariffs hike was in response to Beijing’s decision to raise
levies on $75 billion of US goods.
Tariffs on $250 billion Chinese goods will go to 30 percent and those
planned on $300 billion in Chinese goods go to 15 percent from October 1.
On Monday, China’s yuan currency fell to 7.1487 to the dollar, its weakest
level since early 2008 at the height of the global financial crisis. The drop
is likely to ire Trump, who has labelled Beijing a currency manipulator.
“The gloves are coming off on both sides and as such yuan depreciation is
an obvious cushion against US tariffs,” Mitul Kotecha, a senior emerging
markets economist at Toronto-Dominion Bank, told Bloomberg News.
“As long as China can ensure that yuan weakness is well controlled i.e. it
does not provoke strong outflows, expect to see further depreciation in the
currency.”
On equity markets, Hong Kong led losses, slumping more than three percent,
with investors also spooked by fresh violent protests in the city that saw
police use water cannon for the first time.
Shanghai lost 1.3 percent and Tokyo ended the morning more than two
percent off.
Sydney, Seoul, Wellington, Jakarta and Taipei all sank more than one
percent.
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– Fed boss in crosshairs –
The flight from risk into safer havens saw gold jump to a six-year high
around $1,550 per ounce, while the Japanese yen was at its strongest level
since the end of 2016.
Fears about the trade war’s impact on demand also hit oil prices with both
main contracts falling more than one percent, extending Friday’s sell-off.
The tariffs news overshadowed Powell’s much-anticipated speech on Friday,
where he pledged to ensure US growth and pointed to fresh stimulus if
inflation softens.
He acknowledged the bank has no “rulebook” for dealing with the US-China
trade war but did not announce any more rate cuts, sparking outrage from
Trump, who blames the Fed boss for holding the economy back.
“As usual, the Fed did NOTHING!” Trump said.
“My only question is, who is our bigger enemy, Jay Powel or Chairman Xi?”
Trump said, misspelling the Fed chief’s name and referring to Chinese leader
Xi Jinping.
“Referencing the Fed chair as the enemy is, frankly, just par for the
course… but referencing President Xi now as the enemy rather than ‘my
friend’ is a lot more serious,” said Ray Attrill at National Australia Bank.
“Indeed, the fallout is already apparent in an editorial in Saturday’s
state-run People’s Daily, saying China will follow through with retaliatory
measures announced Friday and fight the trade war to the end in the face of
the US’s failure to keep its promises.”
– Key figures around 0245 GMT –
Tokyo – Nikkei 225: DOWN 2.2 percent at 20,258.92 (break)
Hong Kong – Hang Seng: DOWN 3.2 percent at 25,352.56
Shanghai – Composite: DOWN 1.3 percent at 2,860.87
Dollar/yuan: UP at 7.1444 yuan from 7.0956 yuan at 2100 GMT Friday
Pound/dollar: DOWN at $1.2268 from $1.2290
Euro/dollar: UP at $1.1147 from $1.1145
Euro/pound: UP at 90.87 pence from 90.68 pence
Dollar/yen: DOWN at 105.25 yen from 105.39 yen
West Texas Intermediate: DOWN 87 cents at $53.30 per barrel
Brent North Sea crude: DOWN 78 cents at $58.56 per barrel
New York – Dow: DOWN 2.4 percent at 25,628.90 (close)
London – FTSE 100: DOWN 0.5 percent at 7,094.98 (close)
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