Global stocks pummelled on intensifying trade row, dollar wobbles

TOKYO (Reuters): Global stocks extended a sell-off on Tuesday as an escalating trade fight between the United States and other major economies steered investors away from riskier assets, lifting safe-haven U.S. Treasuries and keeping the dollar on the defensive.

Markets in China - the epicentre of the trade tensions with the United States - were especially hard hit. Losses across Asian equities were broad-based after Wall Street tumbled overnight, with the S&P 500 and Nasdaq suffering their steepest losses in more than two months overnight.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.75%.

Hong Kong’s Hang Seng retreated 1.2%, the Shanghai Composite Index slid 1.4% and Japan’s Nikkei shed 0.5%.

Equities from tech-heavy regions such as South Korea’s KOSPI and Taiwan fell 1% and 0.9%, respectively. Taiwan Semiconductor Manufacturing Co was down 1.15%, South Korean chipmaker SK Hynix Inc lost 0.8% and Japan’s Tokyo Electron was down 1%.

U.S. technology shares were particularly hard hit. Chipmakers which derive much of their revenue from China had taken a battering on Monday, following a report that the U.S. Treasury Department was drafting curbs that would block companies with at least 25% Chinese ownership from buying U.S. tech firms. Besides the trade spat with China, the United States has recently upped the ante in a challenge to the European Union by threatening to impose tariffs on cars imported from the bloc.

“Increasingly hawkish trade rhetoric the United States is employing could begin impacting the economy by cooling investor sentiment and curbing capital expenditure by corporations,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

“It’s turning out to be a long-term bearish factor for the financial markets, as the United States is unlikely to back down at least through its midterm elections.” The dollar index against a basket of six major currencies stood little changed at 94.240 after dipping 0.25% overnight, when it fell for the fourth straight session.

The greenback was pressured as long-term U.S. Treasury yields declined to one-week lows amid the heightened risk aversion in financial markets.

The euro hovered just below an 11-day high of $1.1705 scaled overnight against the sagging dollar. The U.S. currency was down 0.25% at 109.490 yen, having fallen to a two-week low of 109.365 on Monday. The yen often attracts bids in times of political tensions and market turmoil.

Oil rises as outages balance trade dispute, OPEC

London (Reuters): Oil prices rose on Tuesday, supported by Canadian production losses and uncertainty over Libyan exports, but under pressure from climbing OPEC supply and intensifying trade conflicts between the United States and other major economies.

Benchmark Brent crude was up 35 cents at $75.08 a barrel by 0910 GMT. U.S. light crude was 30 cents higher at $68.38 a barrel.

Brent, which tends to reflect global supply and demand, was driven up by uncertainty around oil exports by Libya, a member of the Organization of the Petroleum Exporting Countries.

Eastern Libyan commander Khalifa Haftar’s forces have given control of oil ports to a separate National Oil Corporation (NOC) based in the country’s east.

The official state-owned oil company from the capital Tripoli, also called NOC, will no longer be allowed to handle that oil, he said.

“The move increases the risk that Libyan oil output will be shut in as the NOC in Tripoli is the only legal entity with the right to sell oil,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Production problems at one of Canada’s largest oil sands facilities drove front-month U.S. crude to its highest premium above second-month futures since 2014.

Higher feedstock crude oil prices, as well as surging fuel exports from China, have pulled down Asian refinery product margins to two-year lows.

Uncertainty over Libya’s exports follows a move by OPEC and other oil producers to increase supply by around 1 million barrels per day (bpd).

Oil markets have tightened significantly since 2017, when OPEC and its partners started withholding supply to prop up slumping prices at the time.

But some analysts think oil markets will stay tight.

“Despite the OPEC agreement (last week) we believe that tight supply is likely to drive oil prices higher during 2018,” said Jason Gammel of U.S. investment bank Jefferies.

Bank of America Merrill Lynch (BoAML) said Brent could rise to $90 a barrel by the second quarter of 2019.

But BoAML said the effects of the global trade dispute between the United States and major other economies including the European Union and China were gradually taking effect. In a sign of what may lie ahead for economic growth, the escalating trade fight has already led to sharp sell-offs in stock markets, especially in Asia.

“We estimate a demand 

drop of 44,000 bpd for every 1% drop in global trade,” BoAML said.