Stock markets fell further yesterday but oil recovered, with investors opting for haven assets such as the yen amid intensifying trade tensions.
The British pound rose despite data showing that UK manufacturing contracted for the first time in three years as Brexit stockpiling dried up.
US President Donald Trump’s abrupt threat last week to hit Mexico with tariffs over immigration concerns has done little to reassure investors already anxious about the increasingly fractious US-China trade war.
Trump, beginning a state visit to Britain yesterday, has followed up the threats against Mexico with an announcement that Washington would no longer offer preferential trade treatment to India, starting tomorrow, in a bid to pressure New Delhi to increase market access for US goods.
Beijing’s imposition of duties on $60 billion worth of United States goods meanwhile came into effect Saturday.
The move, which came in retaliation for Washington raising its tariffs on $200 billion in Chinese goods, is the latest round in a bruising battle between the two superpowers.
Referring to “the never-ending game of tariff tag”, OANDA senior market analyst Edward Moya said there were fears “we could see a global recession by the middle of next year if the US imposes additional tariffs on China and Mexico”.
As US-China talks have stalled, the dispute has spread beyond trade, with the US targeting Chinese tech giant Huawei over national security concerns, and Beijing threatening to also identify “unreliable” foreign companies.
In a sign of its unwillingness to cede too much ground, Chinese defence minister General Wei Fenghe on Sunday said that “if the US wants to talk, we will keep the door open. If they want to fight, we are ready”.
There are hopes that Trump and Chinese President Xi Jinping will meet during the G20 summit this month to jumpstart negotiations.
Trump’s trade wars have also sent oil markets plunging, but crude futures did rebound slightly yesterday.
“The month of May was a disaster for crude prices – the worst May performance in seven years – as the escalation of the global trade war saw the global growth outlook crumble,” said analyst Moya.
Elsewhere, yesterday, the IHS Markit/CIPS UK manufacturing purchasing managers’ index showed a reading of 49.4 last month, down from 53.1 in April.
The figure slid below 50 – therefore indicating contraction – for the first time since July 2016.
“The upshot is that as most of impact of the no-deal Brexit preparations in March appear to have now unwound, we don’t expect May’s large fall to be repeated in June,” said Thomas Pugh, UK economist at Capital Economics.