Global markets stalled yesterday after a US threat to slap $500 billion of trade tariffs on China and more yuan weakness, with the dollar slipping and one major benchmark of world equities ekeing out limited gains.
US President Donald Trump said in an interview with CNBC that he was prepared to impose the full raft of tariffs.
When asked about the stock market possibly falling if he took such a step, Mr Trump said: “If it does, it does. Look, I’m not doing this for politics.”
US equity futures turned lower after Mr Trump’s comments, and the VIX volatility index – known as the “fear gauge” – rose to its highest level since July 11. The MSCI All Country World Index, which tracks shares in 47 countries, was up a little over 0.1 per cent, and set to end the week flat after two consecutive weekly gains.
Asian markets were dented by a slide in the Chinese yuan to its lowest for more than a year, after the Chinese central bank set a weaker fixing for the currency for the seventh straight session.
Yesterday’s losses came a day after Mr Trump had also said he was concerned that the “Chinese currency was dropping like a rock”, he did not like rising US interest rates and that the strong US dollar “puts us at a disadvantage”.
The dollar index, which measures the US currency against a basket of peers, was down 0.1 per cent on the day at 95.027.
European markets were not immune to the jitters. The pan-European STOXX index and Germany’s DAX, which is highly exposed to trade and China, were down 0.2 per cent and half a per cent respectively.
Meanwhile, political concerns in Italy returned, hitting government bonds and stocks. Reports of tensions within the coalition and an interview with a lawmaker renewed concerns about Rome’s commitment to the euro.
The benchmark Italian stock index pared losses after Deputy Prime Minister Luigi Di Maio denied media reports that he had demanded Economy Minister Giovanni Tria resign unless he backed government nominees to head major companies.
The euro remained largely unchanged however, and was up 0.2 per cent on the day at $1.1658.
Oil prices pared early gains on the trade worries and on course for a third straight week of falls.
Brent crude pared an early 0.9 per cent gain to be up 0.2 per cent at $72.69 per barrel.