Fresh trade tensions subdue market growth
US stocks started the week lower yesterday while Asian equities slumped and European shares were little changed, as investors grappled with the latest American threats to expand tariffs on Chinese goods.
The dollar slipped and emerging-market currencies declined.
The S&P 500 Index was pulled down by technology companies including Amazon, Apple and Microsoft. Semiconductor stocks also slumped, and the Nasdaq 100 Index saw its biggest intraday drop in more than a week.
The outlook for global trade turned sour over the weekend. Shares in Hong Kong and China led declines in Asia on news that US president Trump had instructed aides to proceed with tariffs on Chinese products.
The US was due to announce that it is imposing a 10% tariff on $200bn (€170bn) of goods, against which Beijing has already said it will retaliate.
“Granted, the amount targeted by tariffs in terms of the US economy is pretty small, but there seems to be a willingness to go bigger and bigger and bigger by this administration,” Bill Barker, portfolio manager of the Motley Fool small mid-cap growth fund, said.
“People have to kind of get used to it because there’s no indication I’m aware of that this is going to end.”
The Stoxx Europe 600 Index swung between gains and losses, with fashion store H&M beating forecasts to help retailers outperform. Italian bonds rallied while other core European debt turned lower. Benchmark US treasury yields hovered just under 3%.
Elsewhere, oil was little changed. Emerging-market stocks weakened and their currencies were led lower by a slide in India’s rupee, South Korea’s won and Turkey’s lira.
European shares recovered from a weak start and closed in positive territory after a choppy session.
The pan-European STOXX 600 reversed early losses to rise 0.1% at the close, while Germany’s Dax, home to large exporters and carmakers, was down 0.2%.
“I think the market has digested more or less all this rollercoaster with tariffs,” said Dimitrios Stefanopoulos, portfolio manager at AlphaTrust in Athens.
He said investors believe Trump will seek a deal ahead of US mid-term elections.
While the potential tariffs on China were reported to be lower than the 25% the administration had previously said it was considering, economists said this would still have a significant impact on markets.
“Our US economists expect that even a 10% tariff rate will slow growth in the fourth quarter, resulting in the Fed skipping a December hike,” wrote UBS strategists.
In London, the Ftse-100 was only marginally down despite the IMF warning that the UK economy will shrink without a Brexit deal.
All options for leaving the EU involve costs, but departing without a deal would inflict “substantial costs for the UK economy, and to a lesser extent the EU economies particularly if it were to occur in a disorderly fashion,” the IMF said.
Until a deal is reached, Brexit uncertainty is likely to weigh on investment, it said. The IMF is predicting moderate growth in the UK economy of about 1.5% this year and next. The forecast is based on a timely trade pact and a relatively smooth exit process thereafter.
A more disruptive departure could lead to “a significantly worse outcome,” the IMF said.
