Global markets fall on US-China trade war fears

Global markets fall on US-China trade war fears

By Sruthi Shankar and Danilo Masoni

Global stocks tumbled on fears of an escalating trade war between the US and China after President Donald Trump threatened to slap $100bn (€81.5bn) more in tariffs and Beijing warned it would fight back “at any cost”.

In light of China’s “unfair retaliation” against earlier US trade actions, Mr Trump upped the ante by ordering officials to identify extra tariffs, escalating a high stakes tit-for-tat confrontation.

He warned US markets could face some “pain” from the trade standoff with China and other countries but claimed that Americans would be better off in the long-run due to his protectionist actions.

“I’m not saying there won’t be a little pain. So we might lose a little of it but we’re going to have a much stronger country when we’re finished, and that’s what I’m all about,” said Mr Trump.

China’s commerce ministry spokesman Gao Feng said the two countries have not recently held any negotiations, which are impossible under current conditions.

“The market was weak from get-go. It was an uncomfortable state to begin with, clearly the reaction from China to tariffs is clearly the only factor driving the markets today,” said Randy Frederick, vice-president of trading and derivatives for Charles Schwab in Austin.

After the initial round of tariffs earlier this week, the markets took comfort from Mr Trump’s top economic adviser Larry Kudlow’s comments that Washington was involved in a negotiation with China rather than a trade war.

Mr Kudlow said he learnt of the new tariffs only on Thursday night. He said negotiations had not yet started, but later claimed talks are ongoing.

His comments on ongoing negotiations and a tepid March US jobs report, which eased fears of faster interest rate hikes, had helped US markets recoup some losses earlier in the day.

That boost was short lived. All major US markets were down in early trading, with all European exchanges closing the week in the red. Hong Kong’s Hang Seng was the only Asian market to make a gain yesterday.

European shares fell across the board, although the losses were limited by gains among defensive stocks like utilities.

The pan-European STOXX 600 fell 0.5%, erasing part of Thursday’s 2.4% gain. Germany’s exporter-heavy Dax index fell 0.7%, the Ftse-100 was down by 0.2%, the CAC-40 in Paris shed 0.3%, and Dublin’s Iseq fell by 0.6%.

“Markets will now watch both the rhetoric from Trump’s cabinet members and China’s response to assess whether risk of a trade war is materially higher,” said Credit Suisse.

“We continue to see a trade war as unlikely.”

New figures yesterday show the US economy created the fewest jobs in six months in March as the boost from mild temperatures faded, but a pickup in wage gains pointed to a tightening labour market, which should allow the Federal Reserve to raise interest rates further this year.

Meanwhile, new figures show Britain recorded its strongest productivity growth in more than a decade in the second half of 2017, helped by a strong fourth quarter, but economists said the improvement was unlikely to prove a turning point.

Productivity growth in most advanced economies has been poor since the 2008 financial crisis and in Britain it has been particularly weak, growing by less than 2% in total over the past decade and acting as a major drag on wages. 

Official forecasters said last month they assumed the improvement seen in preliminary data would not last.

Reuters (additional reporting Bloomberg)

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