A renewed slump in Chinese shares and a sobering set of global factory surveys sucked world markets lower yesterday, while the euro and Mexican peso were both jolted by political developments.
It was the first trading day of the new month, quarter and half-year but there was no let up for bruised investors after the worst start to a year for world shares since 2010.
Shanghai’s “bear” market lurch had continued overnight, with losses of up to 3 per cent as firms await some $34 billion of US tariffs this week and new business surveys showed some worrying signs of deterioration.
Europe suffered a thud too, with the STOXX 600 share index dropping as much as 1 per cent and the euro down 0.5 per cent to $1.1630 as differences over immigration threatened Angela Merkel’s German coalition government.
The trade strains, meanwhile, were compounded by an EU threat to hit the United States with almost $300 billion in retaliatory tariffs, lingering concerns over President Donald Trump’s dislike for the World Trade Organisation and by data showing the weakest euro zone manufacturing sector growth in 18 months.
All the concerns meant more demand for safe-haven bonds. US Treasuries and German Bund both saw buying, whereas Wall Street looked set to go lower.
Tension is growing ahead of a July 6 deadline when Washington is due to impose $34 billion of tariffs on Chinese exports.
A report from Oxford Economics warned that tariff threats, if realised, would extend high tariffs to over 4 per cent of world imports – a more than tenfold rise versus the 0.3 per cent of imports hit by the new tariffs imposed so far.
In currency markets, the euro was knocked back on reports German Interior Minister Horst Seehofer had rejected a migration deal Merkel negotiated at an EU summit on Friday. The currency then partly bounced on news Mr Seehofer had offered to step down as minister and as chair of his Christian Social Union party, only to slide back again after the euro zone manufacturing data came in weak.
The euro was 0.5 per cent lower at $1.1640, having skidded as far as $1.1628 at one stage.
The US dollar gained 0.25 per cent on a basket of currencies to 94.891, but was still below Friday’s top of 95.324. It was flat on the yen at 110.74 having been as high as 111.06 at one stage.
The Mexican peso see-sawed after leftist Andres Manuel Lopez Obrador won a decisive victory for President.
Dealers said the clear win might settle one source of political uncertainty, but Mr Obrador was also expected to sharpen Mexican divisions with Donald Trump.
Meanwhile, Brent crude lost 85 cents to $78.26 a barrel, while US crude fell 30 cents to $73.88. The pullback was still modest given US crude rallied more than 8 per cent last week, while Brent gained more than 5 per cent.