Trump’s tariffs jolt global stocks, spark rush to safer assets

TOKYO (Reuters): Global stocks took a beating on Friday, with investors piling into safe-haven assets but oil prices recouped some losses after US President Donald Trump said he would slap a 10% tariff on the remaining $ 300 billion of Chinese imports starting Sept. 1.

Pan-European Euro Stoxx 50 futures shed 2.0% in late Asian trade, indicating that European cash share markets will open sharply lower on Friday, while US stock futures extended losses, dropping 0.2%, following the S&P 500 skidding 0.9% to hit one-month lows overnight.

Oil prices rose more than 2%, after suffering their biggest one-day fall in years the previous day following further US tariffs on China, intensifying trade tensions between the world’s two biggest economies and crude consumers.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.6% to its lowest since mid-June while Japan’s Nikkei tumbled 2.1%.

Chinese stocks were also hit hard, with the benchmark Shanghai Composite and the blue-chip CSI300 down 1.5% and 1.6%, respectively, while Hong Kong’s Hang Seng slumped 2.2%.

Trump’s announcement, which came a day after US and Chinese negotiators concluded a meeting in Shanghai without significant signs of progress, marks an end to a truce in the trade war struck in June and could further disrupt global supply chains.

“After the US-China summit meeting, people had expected there would be a lull for quite some time,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“And the market was also relieved by signs of recovery in the semi-conductor sector. But now investors and companies will have to revise their scenarios.”

Indeed, the tech-heavy Taiwan’s Taiex slid 1.7% and South Korea’s KOSPI lost as much as 1.5% to hit a fresh seven-month low, after Tokyo approved a plan to remove Seoul from a list of its trusted trading partners, known as a “white list.”

China’s state media quickly denounced Trump’s new tariffs, with the editor in chief of the Global Times saying on Friday that a trade deal between the United States and China was now “further away.”

The war of words appeared to escalate after US Secretary of State Mike Pompeo said “decades of bad behaviour” from China had hampered free trade and prompted tariffs and other action from Washington.

The proposed levies triggered a stampede for safe-haven assets, including US bonds, gold and the yen, while the Chinese yuan and the Australian dollar hit multi-month lows.

Gold stood at $ 1,432.86 per ounce, down 0.8% in Asia after having risen 2.4% on Thursday, staying near a six-year high of $ 1,453 touched two weeks ago.

The Japanese yen surged to a five-week high versus the dollar and a 2-1/2-year peak against the pound as Trump’s tweets bolstered demand for safe-havens.

The yen strengthened to as high as 106.855 to the dollar in early Asian trade, after rising 1.3% overnight, its biggest daily gain in more than two years. The pair last stood at 107.10.

“Yen buying still has further room to run, especially against the crosses. Trump has given us plenty of reason to move to risk-off trades,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities.

The euro recovered to $ 1.1085, from a two-year low of $ 1.1027 hit in US trade.

In contrast, the risk sensitive Australian dollar dropped to a seven-month low of $ 0.6795.

China’s onshore yuan slumped to its lowest since November 2018, falling more than 0.7% to 6.95 per dollar, as new tariffs put an end to a recent pause in a trade war that has forced Chinese policymakers to unleash stimulus to offset its slowing economy. In the offshore market, the yuan fell to as low as 6.9778.

The British pound edged toward a 30-month low versus the dollar due to persistent worries about a no-deal Brexit and a cut in the Bank of England’s economic forecasts. Sterling was last 0.1% lower on the day at $ 1.2110.

The 10-year US bond yield fell almost 12 basis points on Thursday to 1.902%, hitting the lowest since Nov. 8, 2016, when Trump won a surprise victory in the presidential election. The 10-year yield extended its slide to as low as 1.875% in early Asian trade.

Trump’s decision has thrown the Federal Reserve another curve ball that may force it to again cut interest rates to protect the US economy from trade-policy risks after its first rate cut in more than a decade on Wednesday.

Although Fed Chairman Jerome Powell said the rate cut was a “mid-cycle adjustment” and not a start to a full-blown rate-cutting cycle, markets aren’t fully convinced.

The October Fed funds rate futures have jumped to now fully price in a rate cut in September, compared with only around 60% before the tariff announcement. Another 25 basis point move is priced in by December.

“In the grand scheme of things, it will become clearer and clearer that the Federal Reserve has started an easing cycle and will have no choice but to cut rates further,” said Akira Takei, fund manager at Asset Management One.

The new tariffs would hit a wide swathe of consumer goods from cell phones and laptop computers to toys and footwear, at a time when the manufacturing sector is already reeling from the accumulative impact of the trade war.

The US Institute for Supply Management said on Thursday its index of national factory activity fell to 51.2 last month, the lowest reading since August 2016.

Oil prices bounced back after suffering a sharp selloff.

Brent crude rose 2.2% to $ 61.81 per barrel, after having fallen 7.0% on Thursday, its biggest daily percentage drop since February 2016. US West Texas Intermediate (WTI) crude rebounded 1.8% to $ 54.92, having shed 7.9% the previous day.