Global stocks and the dollar fell yesterday after a strong advocate of free trade resigned from the White House, fanning fears that US President Donald Trump will proceed with protectionist tariffs and risk a trade war.
Economic adviser Gary Cohn, seen as a bulwark against protectionist forces within the Trump administration, said on Tuesday he was leaving, sparking a global sell-off across major asset classes.
MSCI’s world equity index, which tracks shares in 47 countries, was down 0.2 per cent, having seen some strength in Asian trading following news that South and North Korea would hold their first summit in more than a decade.
Equity futures pointed to the benchmark US S&P 500 index opening 0.7 per cent lower, with Dow Jones futures down 1 per cent.
Wall Street’s fear gauge, the CBOE Volatility index, was up around 8 per cent.
In Europe, the continent’s car-makers, which face the risk of a hike in import tariffs to the United States, were among the worst performers, falling 0.5 per cent. European stocks as a whole recovered some of their early losses to trade down 0.1 per cent.
“The implication is that without the restraining influence of Cohn on Trump, the president will now have a free hand to press ahead with further tariffs and generally up the ante on trade,” said Neil Wilson, an analyst at ETX Capital.
“This in itself does not bode well for risk despite that small boost we saw on news that North Korea could consider de-nuking.”
Mr Cohn’s departure rippled through foreign exchange and commodity markets.
The US dollar fell 0.4 per cent against the Japanese yen – seen a safe-haven in times of uncertainty. The dollar was just off a 14-month low against the yen hit last Friday.
“The worst outcome for financial markets, in terms of potential to create volatility, would be a confirmation of rising trade friction and benign neglect of the dollar in the short term,” said analysts at ANZ.
Commodities fell on worries that trade friction could slow global growth, with Brent crude futures giving up the previous day’s gains to drop 0.5 per cent.
Copper on the London Metal Exchange lost 1.2 per cent, paring a 1.4 per cent gain from the previous session.