Beijing responded to US President Donald Trump’s announcement on Thursday of levies on up to $60bn of Chinese imports from by saying it was “not afraid of a trade war”, and released a list of potential tariffs on $3bn worth of US goods, from fruits to wine and including some steel and aluminium goods.
The news hammered stocks in Asia, with European stocks also finishing down, if off their worst lows of the day.
In London, the FTSE 100 lost 0.4% at 6,921.94, Frankfurt’s DAX 30 was down 1.8% at 11,886.31 and Paris’s CAC 40 dropped 1.4% to 5,095.32 at the close yesterday.
After falling sharply on Thursday after Trump’s announcement, US stocks pushed higher in early trading yesterday. The rally lost steam, however, with the Dow essentially flat in midday trading.
“A tidal wave of risk aversion engulfed financial markets yesterday,” FXTM analyst Lukman Otunuga said, branding Trump’s move as “bold and frightening”.
Market analyst Jasper Lawler at London Capital Grup said: “China’s three billion dollar response to US tariffs is the realisation of the tit-for-tat trade wars that investors have been fearing.”
The developments have fuelled fears that a strong recovery in the world economy could be thrown off course as the tariffs crimp consumption and production.
But “after plummeting in early trading, stocks mostly recovered in the afternoon as investors came to realise China’s tariff response could have been a lot more severe,” said Lawler.
Trade war fears sent many investors piling into the safe haven yen. The dollar dropped below 105 yen for the first time since Trump was elected president in November 2016. The greenback was down also against the euro.
Adding to the uncertainty was news that Trump’s national security adviser HR McMaster had stepped aside and been replaced by hawk John Bolton, a move that stunned much of Washington.
A vocal advocate of the Iraq war, Bolton has also championed pre-emptive strikes against North Korea and regime change in Iran – making him an outlier even among Republicans.
CMC markets analyst Michael Hewson told AFP Bolton’s appointment was boosting oil prices, with Europe’s main oil contract climbing above $70 per barrel for the first time in seven weeks.
“The appointment of Bolton, who is no fan of the Iran nuclear deal, has prompted concern about renewed efforts to overturn the nuclear deal that has seen Iranian exports return to the market.”
Bolton’s arrival in the White House – the latest in a cascade of Trump’s staff changes – came just days after he replaced secretary of state Rex Tillerson with another Iran hawk, CIA director Mike Pompeo.
“Combined with the nomination of Mike Pompeo, another hawk, at the State Department, most of the market will conclude that at the minimum the Iranian nuclear deal is dead,” noted Petromatrix analyst Olivier Jakob.
