Asian shares, dollar fall as US trade fears eclipse strong China data

Sydney (Reuters): Shares faltered and the dollar skidded on Wednesday as investors fretted over the threat of new U.S. tariffs on Chinese imports, brushing aside data that showed the Asian economy got off to a solid start in 2018.

Investor appetite for risk was also hit by U.S. President Donald Trump’s move to fire his Secretary of State, regarded as a moderate in his administration, reinforcing market uncertainty about Trump’s future policies.

In a sign the equity market sell-off would extend elsewhere, S&P E-Mini futures were down 0.1% while FTSE futures slipped 0.3%.

MSCI’s broadest index of Asia-Pacific shares outside Japan stumbled 0.7%, retreating from a 1-1/2 month high on Tuesday, with the technology sector the biggest drag.

Japan’s Nikkei dropped 0.8%. China’s SSE Composite index and the blue-chip CSI 300 fell 0.5% each.

The MSCI Asia ex-Japan IT index declined 0.5% as Trump sought to impose tariffs on up to $60 billion against information technology, consumer electronics and telecoms.

Large Asian technology stocks such as LG Display , Tencent Holdings and Taiwan Semiconductor were all down by more than 1%.

Investors suspect policymakers who favour protectionism will also seek to use the currency as a trade weapon, if not overtly then through benign neglect.

As news from the United States dominated, the market shrugged off stronger-than-expected data from China which showed the country’s industrial output expanded at a surprisingly faster pace at the start of the year. Fixed asset investment also handily beat forecasts, while retail sales improved from December.

Investors were inconsolable and followed overnight losses on Wall Street with the Dow off 0.7%, the S&P 500 down 0.6% and the Nasdaq Composite falling 1.0%.

The selling intensified after Trump dismissed Tillerson following a series of public rifts over policy on North Korea, Russia and Iran. He was replaced with loyalist CIA Director Mike Pompeo.

The move comes only days after the exit of White House economic advisor Gary Cohn who was a strong proponent of free trade.

Since Trump took office in 2017 as many as 35 senior officials from his administration have walked out, including Tillerson, according to Citi.

Tillerson’s dismissal and the risk of new import duties on China coincided with subdued U.S. consumer price data on Tuesday with annual core inflation, at 1.8%, meeting expectations.

The in-line reading should have been positive for risky assets as it was the fear of a pick-up in inflation and in-turn faster U.S. rate hikes that had hit global shares in early February.

But the inflation data did little to move market expectations of Fed rate rises with an increase next week now fully priced-in.

All that put together meant dollar weakness across a basket of currencies. It eased a tad to 106.5 yen.