Trade Tensions Wreak Havoc; Asian Shares Plummet

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Trade tensions between the U.S. and China wreaked havoc on Asian equity markets in Asia on Tuesday ahead of the July 6 deadline.

The MSCI index fell to its lowest since September 29, plummeting 1.4 percent the Nikkei fell to a three month low of 0.1 percent.

Hardest hit were Chinese stock with the Hang Seng index falling to its lowest level in 10 months shedding 3.3 percent, the Shanghai Composite Index was at a 24 month low, falling as much as 1.9 percent. The Hong Kong market was volatile and settled down 1.9 percent and the Shanghai bourse gained 0.05 percent.

The U.S. is resolved to impose tariffs on $34 billion worth of Chinese imports on July 6 which Beijing said that they will match on U.S. products. The rhetoric has made financial markets jittery, especially the Chinese markets with heightened concerns of a full blown trade war.

Chinese Yuan Continues Its Fall

In early morning trading the Chinese yuan saw its biggest losses since Aug. 9, 2017 slipping past 6.7 per dollar. Speculation that the Chinese central bank was intervening to prevent destabilization and the sell-off in the yuan.

Market strategist at Sumitomo Mitsui Trust Bank, Ayako Sero said that it is apparent that Chinese companies will suffer, but it is still unclear if the global economy will be affected as a whole.
He is also of the opinion that the Selloffs in Chinese yuan and Chinese stocks will continue to fall at least until the deadline of July 6, the question is how much further and how quickly?

Reports from four traders that major state-owned banks were swapping yuan for dollars in the forwards market and them selling some into spot market in an effort to support the yuan.

The Chinese central bank reportedly said on their website that they will keep the yuan stable at a reasonable level and are paying close attention to the fluctuations.

Singapore based senior sovereign analyst at BNY Mellon Investment Management, Aninda Mitra said in a note that she has detected a lot of nervousness about a trade war, which has come at a bad time for China, who has been experiencing a downturn whilst the U. S. economy is seeing a sharp upturn.
At the close of trading the yuan was at 6.6960 per dollar, after the central bank set the day of a midpoint of market expectations at 6.6497 yuan per dollar.

Against other major trading partners like the euro the yuan has also lost ground.

With little signs of President Trump backing down from his protectionism policies of ‘America First’ there is a fear that the trade row will harm the global economy.

China Mobile was also blocked by Washington on Monday from offering their services to the U.S. Telecommunications market, on the grounds that they posed a national security risk.

Chinese officials say that the tit for tat tariffs over the trade row will be detrimental for American businesses and jobs.

Also on Monday the World Trade Organization were put on notice by President Trump, after saying that if the U.S. is not treated properly

European Markets

After falling 0.45 percent in overnight trading the euro was at $1.1650.

Pressure by Germany’s interior minister, Horst Seehofer who threatened to quit the governing coalition over migration policies (he consequently dropped his threat). This could have potentially toppled the government, contributed to the fall in the euro.

European stock futures gained with France CAC, up 0.3 percent Germany DAX, and Britain FTSE up 0.5 percent.

Oil posted gains with Brent Crude up 0.8 percent to $77.93 a barrel.

West Texas Intermediate crude gained 1.1 percent to $74.77 a barrel.

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