Equity investors ran for cover again yesterday as it dawned on markets that US President Donald Trump’s trade war threat against China could be deadly serious.
Indices had slumped on Monday, with Shanghai suffering its heaviest loss in three years, after Mr Trump threatened to hike tariffs on $200 billion of Chinese goods this week amid apparent setbacks in trade talks between the economic superpowers.
Some quickly dismissed the move as Trump-style brinkmanship, but many market players have decided they would rather not take any chances.
“Smoke continues to linger across market sentiment following the smoke grenade President Trump launched over the weekend with the threat of adding further tariffs on Chinese imports at the end of the week,” said Lukman Otunuga, a research analyst at FXTM.
Mr Trump’s remarks completely wrongfooted markets, coming just days after officials on both sides had sounded positive on the talks.
“Say what you want about the US president... but predictability and subtlety were never part of his election pledges,” OANDA senior market analyst Jeffrey Halley said.
Stephen Innes at SPI Trading called the turmoil “the latest Tariff Man-triggered trade kerfuffle”, warning that the downside to financial markets of a trade war could be huge.
“If you thought the recent tumult was vicious, trust me ‘you ain’t seen nothing yet’ if indeed trade tensions escalate further,” he said.
Equities could be facing a correction of 5-10 per cent, Mr Innes warned yesterday.
Wall Street’s Dow index shed over 200 points at the New York opening, while eurozone markets lost up to one percent – with a growth outlook downgrade for the eurozone not helping.
London did even worse as the UK market played catch-up after Monday’s holiday there.
Earlier in the day, Shanghai’s index recovered slightly, having lost a whopping 5.6 per cent the previous session.
The International Monetary Fund warned that tensions between the economic super-
powers were a “threat” to the world economy.
On currency markets, the yuan stabilised after being hammered Monday, though most other higher-yielding, riskier units managed to claw back some of their losses.
But not the Turkish lira, which slipped back into crisis mode with a heavy fall yesterday.
The lira “has come back onto investors’ radars with a three percent plunge... triggered by election shenanigans in the country”, said Fiona Cincotta, senior market analyst at City Index traders.
Turkish President Recep Tayyip Erdogan yesterday welcomed an order to re-run the recent Istanbul election, a move the Opposition has branded an attack on democracy.