China's Xi renews vow to open economy, cut tariffs as U.S. trade row deepens

Asian Stock Markets

Chinese President Xi Jinping promised on Tuesday to open the country’s economy further and lower import tariffs on products like cars, in a speech seen as an attempt to defuse an escalating trade dispute with the United States.

While much of his pledges were reiterations of previously announced reforms that foreign businesses say are long overdue, Xi’s comments sent stock markets and the U.S. dollar higher on hopes of a compromise that could avert a trade war.

Xi said China will widen market access for foreign investors, addressing a chief complaint of its trading partners and a point of contention for U.S. President Donald Trump’s administration, which has threatened billions of dollars in tariffs on Chinese goods.

Trump struck a conciliatory tone in response to Xi’s speech, saying in a post on Twitter that he was “thankful” for the Chinese leader’s kind words on tariffs and access for U.S. automakers, as well as his “enlightenment” on the issue of intellectual property.

“We will make great progress together!” Trump tweeted.

Washington charges that Chinese companies steal the trade secrets of American companies and force them into joint ventures to get hold of their technology, an issue that is at the center of Trump’s current tariff threats.

The latest comments from both leaders appear to reinforce a view that a full-scale trade war can be averted, although there have been no talks between the world’s two economic superpowers since the U.S. tariffs were announced.

“But of course actions speak louder than words. We will keep an eye on the progress of those opening-up measures.”

The speech at the Boao Forum for Asia in the southern province of Hainan had been widely anticipated as one of Xi’s first major addresses in a year in which the ruling Communist Party marks the 40th anniversary of its landmark economic reforms and opening up under former leader Deng Xiaoping.

Xi said China would raise the foreign ownership limit in the automobile, shipbuilding and aircraft sectors “as soon as possible” and push previously announced measures to open the financial sector.
“This year, we will considerably reduce auto import tariffs, and at the same time reduce import tariffs on some other products,” Xi said.

He said “Cold War mentality” and arrogance had become obsolete and would be repudiated. His speech did not specifically mention the United States or its trade policies, which have been assailed by Chinese state media in recent days.

Vice Premier Liu He had already vowed at the World Economic Forum in January that China would roll out fresh market opening moves this year, and that it would lower auto import tariffs in an “orderly way”.

Chinese officials have promised since at least 2013 to ease restrictions on foreign joint ventures in the auto industry, which would allow foreign firms to take a majority stake. They currently are limited to a 50 percent stake in joint ventures and cannot establish their own wholly owned factories.

Tesla’s Chief Executive Elon Musk has railed against an unequal playing field in China and wants to retain full ownership over a manufacturing facility the company is in talks to build there.

Foreign business groups welcomed Xi’s commitment to reforms, including promises to strengthen legal deterrence on intellectual property violators, but said the speech fell short on specifics.

“China is opening sectors where they already have a distinct advantage, or a stranglehold over the sector,” Short said, citing its banking industry, which is dominated by domestic players.

Xi’s renewed pledges to open up the auto sector come after Trump on Monday criticized China on Twitter for maintaining 25 percent auto import tariffs compared to the United States’ 2.5 percent duties, calling such a relationship with China not free trade but “stupid trade.”

Analysts have cautioned that any Chinese concessions on autos, while welcome, would be a relatively easy win for China to offer the United States, as plans for opening that sector had been under way well before Trump took office.

But Vice Commerce Minister Qian Keming said at the forum on Tuesday that China’s economic reforms were driven by domestic factors and not due to external pressures.

Xi said China would accelerate opening up its insurance industry, with Shanghai Securities News citing a government researcher after the speech saying foreign investors should be able to hold a controlling stake or even full ownership of an insurance company in the future.

Trump’s move last week to threaten China with tariffs on $50 billion in Chinese goods was aimed at forcing Beijing to address what Washington says is deeply entrenched theft of U.S. intellectual property and forced technology transfers from U.S. companies.

Chinese officials deny such charges, and responded within hours of Trump’s announcement of tariffs with their own proposed commensurate duties.

The move prompted Trump last week to threaten tariffs on an additional $100 billion in Chinese goods, which have yet to be identified. None of the announced duties have been implemented yet, offering room for negotiation.

Beijing charges that Washington is the aggressor and spurring global protectionism, although China’s trading partners have complained for years that it abuses World Trade Organization rules and practices unfair industrial policies that lock foreign companies out of crucial sectors with the intent of creating domestic champions.

While U.S. officials, including Trump, have recently expressed optimism that the two sides would hammer out a trade deal, Chinese officials in recent days have said negotiations would be impossible under “current circumstances”.

Dallas Federal Reserve Bank President Robert Kaplan, on a visit to Beijing, said he was optimistic that very few if any of the proposed tariffs by the United States and China announced in recent weeks will actually be implemented.

“I think it’s so clearly in the interest of both countries that we have a constructive trading relationship and that we have substantive talks to redress these issues."

China's Xi renews pledges to open economy, cut tariffs this year

Asian Stock Markets

Chinese President Xi Jinping on Tuesday promised to open the country’s economy further and lower import tariffs on products including cars, in a speech seen as an attempt to defuse an escalating trade dispute with the United States. 

While most of the pledges were reiterations of previously announced measures, for which foreign business groups say implementation is long overdue, Xi’s comments sent U.S. stock futures, the dollar and Asian shares higher.

Xi said that China will sharply widen market access for foreign investors, a chief complaint of the country’s trading partners and a point of contention for U.S. President Donald Trump’s
administration, which has threatened billions of dollars in tariffs on Chinese goods.

The speech at the Boao Forum for Asia in the southern province of Hainan had been widely anticipated as one of Xi’s first major addresses in a year in which the ruling Communist Party marks the 40th anniversary of its landmark economic reforms and opening up under former leader Deng Xiaoping.

Xi said China would raise the foreign ownership limit in the automobile, shipbuilding and aircraft sectors “as soon as possible”, and push previously announced measures to open the financial sector.

Chinese officials have been promising since at least 2013 to ease restrictions on foreign joint ventures in the auto industry, which would allow foreign companies to take a majority stake.
They currently are limited to a 50 percent stake in joint ventures, and are not allowed to establish wholly owned factories.

Tesla’s Chief Executive Elon Musk has railed against an unequal playing field in China and wants to retain full ownership over a manufacturing facility the company is in talks with the Chinese government to build there.

Chinese Vice Premier Liu He promised at the World Economic Forum in January that China would roll out fresh market openings this year, and that it would lower auto import tariffs in an “orderly way”.

Foreign business groups welcomed Xi’s commitment to reforms, including promises to strengthen legal deterrence on intellectual property violators, but said the speech fell short on specifics.

Chinese President Xi Jinping delivers a speech at an annual meeting of the Boao Forum for Asia in Boao, in the southern Chinese province of Hainan, in this photo taken by Kyodo April 10, 2018. 

Jonas Short, head of Beijing office at Everbright Sun Hung Kai said the market reacted positively to Xi’s speech because it saw it as an easing of trade tensions, but voiced caution about the likely extent of such reforms.

Xi’s renewed pledges to open up the auto sector come after Trump on Monday criticized China on Twitter for maintaining 25 percent auto import tariffs compared to the United States’ 2.5 percent duties, calling such a relationship with China not free trade but “stupid trade”.

Xi also said China would speed up opening up of its insurance industry, with Shanghai Securities News citing a government researcher after the speech saying foreign investors should be able to hold a controlling stake or even full ownership of an insurance company in the future.

Trump’s move last week to threaten China with tariffs on $50 billion in Chinese goods was aimed at forcing Beijing to address what Washington says is deeply entrenched theft of U.S. intellectual property and forced technology transfers from U.S. companies.

Chinese officials deny such charges, and responded within hours of Trump’s announcement of tariffs with their own proposed commensurate duties.

The move prompted Trump last week to threaten tariffs on an additional $100 billion in Chinese goods, which have yet to be identified, and none of the announced duties have been implemented yet.

Beijing charges that Washington is the aggressor and spurring global protectionism, although China’s trading partners have complained for years that it abuses World Trade Organization rules and practices unfair industrial policies that lock foreign companies out of crucial sectors with the intent of creating domestic champions.

While China has recently expressed optimism that the two sides would hammer out a trade deal, Chinese officials in recent days have said negotiations would be impossible under “current circumstances”.

Chinese government advisers expect limited economic hit from U.S. trade rift

Asian Stock Markets

Chinese state researchers and media have talked down the likely impact of U.S. trade measures on the world’s second largest economy and described the Trump administration’s posturing on trade as the product of an “anxiety disorder”. 

The comments from various government advisers came as U.S. President Donald Trump predicted on Sunday that China would make concessions in the face of rising trade tensions, though China has vowed to not back down in any trade war.

The various statements referred to the trade spat between the world’s two largest economies as Washington’s reaction to China’s fast economic growth.

On Monday, a researcher with China’s state planning agency said China’s economy will see little impact from the trade dispute, as the country’s vast domestic market can compensate for any external impact.

Even with the U.S. tariffs, China can still reach its 2018 GDP growth target of around 6.5 percent and the impact on employment will be limited, Wang wrote.

Fan Gang, an influential economist and adviser to China’s central bank, on Sunday flagged the possibility of a U.S. trade war as the U.S. economy faces pressure from China’s rapid development.

The Chinese Communist Party’s official newspaper on Monday described U.S. trade policies as a populist tilt by Trump ahead of the U.S. mid-term elections but that the steps would ultimately end up hurting U.S. households through higher consumer prices.

Focus this week will be on high level comments at the Boao Forum for Asia, an economic conference in Hainan province, with President Xi Jinping and International Monetary Fund Managing Director Christine Lagarde delivering speeches on Tuesday.

Discussion of the trade dispute also touched on the possibility of China leveraging its massive holdings of U.S. government debt, which has been dubbed the “nuclear option”.

Zhang Yuyan, a researcher at the Chinese Academy of Social Sciences, a government think-tank, said China was unlikely to sell off its holdings of U.S. Treasury bonds as a tactic in its trade dispute with the United States.

However, in separate comments, central bank adviser Fan on Monday said China should make better use of its capital reserves by investing in real assets, rather than U.S. debt, reiterating a long-standing call from economists for China to diversify its holdings.

China held around $1.17 trillion (£829.4 billion) of Treasuries as of the end of January, making it the largest of America’s foreign creditors and the No. 2 overall owner of U.S. government bonds after the Federal Reserve.

A Chinese vice finance minister said last week that China is a responsible investor of its foreign exchange reserves and that it follows market rules in investing its reserves.

Trump threatens tariffs on $100 billion more China goods; Beijing ready to strike back

Global Stock markets

China warned on Friday it was fully prepared to respond with a “fierce counter strike” of fresh trade measures if the United States follows through on President Donald Trump’s threat to slap tariffs on an additional $100 billion in Chinese goods. 

In light of China’s “unfair retaliation” against earlier U.S. trade actions, Trump upped the ante on Thursday by ordering U.S. officials to identify extra tariffs, escalating a high stakes tit-for-tat confrontation with potentially damaging consequences for the world’s two biggest economies.

China’s Commerce Ministry spokesman, Gao Feng, called the U.S. action “extremely mistaken” and unjustified, adding that the spat was a struggle between unilateralism and multilateralism. He also said no negotiations were likely in the current circumstances.

“The result of this behavior is to smash your own foot with a stone,” Gao told a news briefing in Beijing. “If the United States announces an additional $100 billion list of tariffs, China has already fully prepared, and will not hesitate to immediately make, a fierce counter strike”.

Gao was speaking shortly after Trump defended his proposed tariffs on U.S. radio, saying the move might cause “a little pain” but the United States will be better off in the long run.

“I’m not saying there won’t be a little pain, but the market has gone up 40 percent, 42 percent so we might lose a little bit of it,” Trump said in an interview with New York station 77 WABC’s “Bernie & Sid” show on Friday.

“So we may take a hit and you know what, ultimately we’re going to be much stronger for it.”

On Wednesday, China unveiled a list of 106 U.S. goods - from soybeans and whiskey to frozen beef and aircraft - targeted for tariffs, in a swift retaliatory move only hours after the Trump administration proposed duties on some 1,300 Chinese industrial, technology, transport and medical products.

Washington has called for the $50 billion in extra duties after it said a probe determined Chinese government policies are designed to transfer U.S. intellectual property to Chinese companies and allow them to seize leadership in key high-technology industries of the future.

China said it was not afraid of a trade war, even though it did not seek one, and accused the United States of provoking the conflict. Gao said comments from U.S. officials about ongoing talks about trade issues were incorrect.

While Beijing’s claims that Washington is the aggressor and is spurring global protectionism, China’s trading partners have complained for years that it abuses World Trade Organization rules and propagates unfair policies at home that lock foreign firms out of some sectors as domestic champions are being nurtured.

China has repeatedly vowed that it would open up sectors such as financial services.

President Xi Jinping next week is expected to unveil fresh measures on reform and his country’s opening up at the high-profile Boao Forum, China’s equivalent of Davos, in the southern island province of Hainan.

While China has projected an image of multilateralism and restraint amid the escalating trade dispute with the United States, Beijing has been swift to respond to Washington’s rhetoric and actions.

So far, U.S. information technology products from mobile phones to personal computers have largely escaped the ire of Beijing, as well as telecoms equipment and aircraft larger than the equivalent of a Boeing 737.

Among the most affected by a trade war could be the U.S. technology sector, particularly chipmakers. The U.S. semiconductor sector relies on China for about a quarter of its revenue.

It also remains to be seen if the trade dispute would trigger a nationalistic travel backlash. When ties between Beijing and Seoul chilled, Chinese tourism to South Korea plummeted and Made-in-South Korea products were shunned by consumers in China.

On Chinese social media on Friday, among the most searched phrases were “China hasn’t grown up afraid” and “China will follow through to the end.”

The China Chamber of International Commerce said the Chinese business community would firmly support its government’s efforts to counter “irrational and erroneous” U.S. words and actions, the official Xinhua news agency reported, and urged Washington not to go “further and further down the wrong path”.

Analysts at Oxford Economics warned that a full-blown trade war will have damaging consequences.
“Importantly, these threatened tariffs will be subject to negotiation, and therefore shouldn’t be considered as final,” the analysts wrote in a note to client.

“A (full-blown) trade war meanwhile would have a more pronounced effect. The U.S. and China would suffer significant slowdown in real GDP growth – a cumulative loss around 1.0 percentage point,” and cut global economic growth to 2.5 percent in 2019 from 3.0 percent in Oxford’s baseline scenario.

The escalating tit-for-tat trade actions between the two economic superpowers have roiled global financial markets, as investors worried about the impact on world trade and growth, hitting equities, the dollar and a range of riskier assets such as copper and boosting safe-havens such as the Japanese yen and gold.

The dollar fell in Friday’s trade, while U.S. stock futures and most of Asia’s stock markets were in the red. [MKTS/GLOB 

US STOCKS-Futures drop as Trump refuels trade war worries

Global Stock markets

U.S. stock futures dropped on Friday after the United States and China renewed their trade spat, underpinning fears that the tit-for-tat actions could spiral into a trade war, and ahead of a closely watched monthly jobs data. 

Globally, stock markets edged downward after President Donald Trump threatened to slap an additional $100 billion in tariffs on Chinese goods and Beijing warned it would fight back “at any cost” with fresh trade measures.

At 7:30 a.m. ET, Dow e-minis were down 206 points, or 0.84 percent. S&P 500 e-minis were down 21.25 points, or 0.80 percent. Nasdaq 100 e-minis were down 62 points, or 0.94 percent.

Shares of Boeing, the single largest U.S. exporter to China, fell 2.4 percent, leading the losses among big U.S. manufacturers. Caterpillar fell 2.1 percent and Deere dropped 1.2 percent.

Twenty-nine of the 30 Dow Jones Industrial Average components were trading premarket – all in the red. More than 110 S&P 500 stocks were lower, led by chipmakers, which as a group rely on China for about a quarter of their revenue.

Facebook, Amazon, Netflix and Alphabet - the FANG group - were down between 1.3 percent and 2.3 percent, while Apple fell 1.5 percent. These stocks have a heavy influence on major indexes.

The list of decliners were similar to Wednesday, when the United States and China announced tariffs on $50 billion of each others’ imports.

After being roiled for most of that day, Wall Street staged a strong comeback to close higher after Trump’s top economic adviser Larry Kudlow said the administration was in a “negotiation” with China rather than a trade war.

Trump’s latest salvo injected a fresh dose of nervousness into the market, already jittery ahead of U.S. jobs data for March for indications of economic health and the future path of interest rate hikes.

Nonfarm payrolls probably increased by 193,000 jobs last month, according to a Reuters survey of economists, lower than the 313,000 increase in February and the 242,000 average of the past three months. The data is due at 8:30 a.m ET (1230 GMT).

The unemployment rate is forecast to fall to 4 percent. Average hourly earnings are expected to have risen, with the annual increase rising to 2.7 percent, but staying below the 3-percent that economists say is needed to lift inflation toward the Federal Reserve’s 2-percent target.

Recent economic data has indicated an improving economy, which, coupled with the U.S. tax overhaul, has boosted investors optimism about the upcoming earnings season. First-quarter earnings growth is expected to be the highest in seven years.

Investors will also tune into Fed Chairman Jerome Powell’s speech at an event later in the day for signs the central bank could raise rates more than the expected two more times this year.

Investors scope out potential European wins from U.S.-China frictions

European Stock Markets

Nobody wins a trade war, International Monetary Fund chief Christine Lagarde said in March. But for some European companies, a bit of friction couldn’t hurt. 

European producers of aircraft, telecoms equipment and whisky could stand to benefit if U.S.-China trade tensions allow them to chip away at their American rivals’ share of the massive Chinese market.

Traders and investors have begun looking at which European stocks could reap rewards if the two countries impose tariffs on a long list of each other’s goods.

China’s tariff list targets U.S. aircraft imports, hurting Boeing (BA.N) and potentially opening the way for European arch-rival Airbus (AIR.PA) to fill the gap.

Boeing is the main proxy in any trade war plays, according to a trader at Northern Trust Capital Markets, who said he had seen some investors short the stock in the past weeks.

China accounts for 10 percent of all U.S. aircraft exports and all U.S. auto exports, according to UBS.
Boeing’s shares were punished on Wednesday but recovered at the close, while Airbus was among the best performers.

The consumer sector could also see some rotation of Chinese demand away from big U.S. names and into European brands. German sportswear brand Adidas (ADSGn.DE), for example, could make inroads to the detriment of U.S. rival Nike (NKE.N).

Investors emphasized that Nike, which makes most of its products in China, would likely see little price change from the tariffs, however. Any impact would likely come from Chinese consumers actively turning away from U.S. brands.

One portfolio manager said he was short Nike shares as he expected Chinese consumers to shun the brand in favor of European names.

U.S. companies producing to export to China, like the maker of Jack Daniels whisky in Kentucky (BFb.N), could be more directly impacted.

European drinks makers’ shares rose on Wednesday on speculation Chinese demand may switch to European equivalents such as Martell cognac and Chivas Regal whisky, produced by Pernod Ricard (PERP.PA), or Remy Martin cognac (RCOP.PA).

Nokia (NOKIA.HE) was singled out by traders and analysts as a likely beneficiary of tariffs drawing more Chinese demand to European mobile equipment makers. Its shares were steady during Wednesday’s sell-off and were up 1.9 percent on Thursday.

Europe’s biggest export to China is telecommunications equipment, according European statistics office Eurostat.

Big exporters of industrial machinery, such as ABB (ABBN.S) and Siemens (SIEGn.DE), could also be relatively favored by higher U.S.-China trade costs because they compete directly with U.S. firms such as Honeywell (HON.N), said Roland Kaloyan, European equity strategist at Societe Generale.
ABB and Siemens enjoyed strong price gains on Thursday.

Investors also pointed to European chipmakers such as ASML (ASML.AS) and Infineon IXFGn.DE as likely to benefit from China switching away from U.S. semiconductor suppliers.

Semiconductor stocks, which have led the rally in tech over the past year, are highly liquid and therefore easy for investors to short as a proxy to the trade war theme, the Northern Trust trader said.

The complicated nature of global supply chains means tariffs on U.S. imports could also negatively impact European companies.

Chinese tariffs on auto imports from the United States, for example, could disproportionately hurt European carmakers which export their products to China from U.S. plants.

Asked about the Chinese tariffs, Daimler (DAIGn.DE) said it would not speculate about ongoing negotiations.

Companies with manufacturing sites in China could also get hurt.

Goldman Sachs analysts pointed to the healthcare sector, where medical technology companies GN Store (GN.CO), Sonova (SOON.S) and Philips (PHG.AS) have big Chinese manufacturing facilities.

Trade war relief rally lifts European stocks

European Stock markets

European stocks jumped on Thursday as investors bought back into risky assets in a global relief rally as concerns over trade war ebbed. 

The STOXX 600 rose 1.5 percent to a two-week high in early deals, buoyed by financials and industrials stocks, riding the wave of gains which had pushed Wall Street and Asian stocks up overnight.

After the latest retaliatory blow from China against U.S. tariffs, investors’ reaction was more muted than expected, as some calculated a full-blown trade war would be averted.

Basic resources and tech stocks, the sectors seen as most vulnerable to a higher cost of trading, led gains.

Financials, the bellwether of investors’ perception of global market risks, provided the biggest boost. HSBC, BNP Paribas and Santander were top gainers, up 1.2 to 2.1 percent.

Video games maker Ubisoft (UBIP.PA) jumped 6.7 percent, with traders and analysts pointing to the success of its latest video game Far Cry 5, which broke the franchise’s sales records.

Electrocomponents (ECM.L), Britain’s largest industrial distribution firm, gained 4.7 percent after results.

Citi strategists recommended investors “buy the dip” in stocks.

They also upgraded UK equities to “overweight”, arguing recent underperformance and cheap valuations made them attractive, and downgraded continental European equities to “neutral”.

Dollar inches up vs. yen on hopes trade war can be averted, U.S. job data awaited

Asian Stock Markets

The dollar inched up against the yen on Thursday as stocks bounced back from a sell-off triggered by an escalating U.S.-China trade dispute. 

The greenback was 0.15 percent higher at 106.930 yen JPY=, having pulled higher from a low of 105.990 set the previous day.

The yen, often sought in times of market turmoil and political tensions, had rallied as Wall Street shares initially tumbled on Wednesday after China’s swift move to impose retaliatory tariffs on U.S. goods.

But a comeback by U.S. equities helped the dollar bounce, as trade war concerns calmed somewhat after President Donald Trump’s economic the administration was in “negotiation” with China, and not engaged in a trade war.

The dollar extended gains as equities in the region followed Wall Street's lead, with Japan's Nikkei .N225 rising nearly 2 percent.

Against the Swiss currency, another perceived safe haven along with the yen, the dollar was little changed at 0.9609 franc CHF= after rising 0.2 percent overnight.

The euro nudged up 0.05 percent to $1.2284 EUR=, adding to the previous day's modest gains.

The common currency still remained within reach of a two-week low of $1.2254 plumbed on Tuesday after a survey showed the euro zone’s manufacturing boom stumbled for a third month in March as optimism waned and demand ebbed.

The dollar index against a basket of six major currencies was effectively flat at 90.123 .DXY.

The Australian dollar initially extended the previous day's surge, when it was lifted by better-than-expected domestic retail sales data, to reach a nine-day high of $0.7726 AUD=D4 before losing steam. The Aussie was last down 0.2 percent at $0.7701.

China hammers U.S. goods with tariffs as 'sparks' of trade war fly

Asian Stock Markets

China has increased tariffs by up to 25 percent on 128 U.S. products including frozen pork, wine and certain fruits and nuts, escalating a spat between the world’s biggest economies in response to U.S. duties on imports of aluminium and steel. 

The tariffs, to take effect on Monday, were announced late on Sunday by China’s finance ministry and matched a list of potential tariffs on up to $3 billion (£2.1 billion) in U.S. goods published by China on March 23

Soon after the announcement, an editorial in the widely read Chinese tabloid Global Times warned that if the U.S. had thought China would not retaliate or would only take symbolic counter-measures, it can now “say goodbye to that delusion.”

China’s Ministry of Commerce said it was suspending its obligations to the World Trade Organization (WTO) to reduce tariffs on 120 U.S. goods, including fruit and ethanol. The tariffs on those products will be raised by an extra 15 percent.

Eight other products, including pork and scrap aluminium, will now be subject to additional tariffs of 25 percent, it said, with the measures effective from April 2.

The retaliatory tariffs came amid escalating trade tensions between Beijing and Washington, which have rocked global financial markets in the past week as investors feared a full-blown trade spat between two countries will be damaging for world growth.

U.S. President Donald Trump is separately preparing to impose tariffs of more than $50 billion on Chinese goods intended to punish Beijing over U.S. accusations that China systematically misappropriated American intellectual property - allegations Beijing denies.

China has repeatedly promised to open its economy further, but many foreign companies continue to complain of unfair treatment. China warned the United States on Thursday not to open a Pandora’s Box and spark a flurry of protectionist practices across the globe.

The Global Times is run by the ruling Communist Party’s official People’s Daily, although its stance does not necessarily reflect Chinese government policy.

In a statement published on Monday morning, the Chinese commerce ministry said the United States had “seriously violated” the principles of non-discrimination enshrined in World Trade Organization rules, and had also damaged China’s interests.

“China’s suspension of some of its obligations to the United States is its legitimate right as a member of the World Trade Organization,” it said, adding that differences between the world’s two largest economies should be resolved through dialogue and negotiation.

Asian shares hammered as trade war fears sap sentiment

Asian Stock Markets

Asian shares were hammered again on Monday as fears of a trade war between the United States and China took their toll, but the safe haven yen came off its highs and U.S. stock futures climbed as investors saw some light at the end of the tunnel. 

Global markets were shaken when U.S. President Donald Trump moved to slap tariffs on Chinese goods, on top of import duties on steel and aluminium, prompting a defiant response from Beijing. 

But E-Mini futures for the S&P 500 .ESc1 brushed off the gloom on Monday to leap 0.6 percent on reports the United States and China have quietly started negotiating to improve U.S. access to Chinese markets.

The United States also agreed to exempt South Korea from steel tariffs, imposing instead a quota on steel imports as the two countries renegotiate their trade deal.

The positive headlines were little consolation for Asian shares which were left nursing their wounds. 

Japan's Nikkei .N225 trimmed early losses but were still down 0.4 percent. Chinese shares declined about 1.7 percent. SSEC .CSI300

 

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.4 percent for its fourth consecutive day in the red. 

The index is headed for its first quarterly decline since late 2016 as the risk of faster U.S. rate rises and a trade war spooked investors who had enjoyed a multi-year bull run.

South Korea's benchmark share index .KS11 rose 0.3 percent, one of only three markets in positive territory. "Protectionism remains a source of volatility and downside risk for equities," analysts at JPMorgan said in a note. 

“Asia ex-Japan equity outperformance is in part a function of faster growth and capital inflows - both clearly at risk in a trade war.” 

In the uncertain global economic climate, investors looked to pile into the Japanese yen JPY=, traditionally a safe haven asset thanks to the country's massive current account surplus. 

Speculators added short dollar bets to their portfolios, taking the net short position to its highest in more than a year, according to calculations by Reuters and the Commodity Futures Trading Commission for the week to March 20.Short yen positions were cut to the smallest since November 2016. 

By late Asian trade, the yen had eased slightly from near 16-month highs to 104.90 per dollar while the Australian and New Zealand dollars, a liquid proxy for China plays, staged a welcome rebound.

The Aussie AUD= was up 0.3 percent while the kiwi NZD= gained 0.6 percent. 

The dollar index .DXY tracking the greenback against six other major currencies was near a one-month low at 89.423. 

In commodities, international Brent crude futures LCOcv1 opened above $70 per barrel for the first time since January but the gains could not be sustained as the ongoing trade disputes weighed on global markets. [O/R] 

Spot gold XAU= was flat at $1,346.8199 an ounce.

Global trade war sent stock markets sliding

Global Stock Markets

The threat of a global trade war sent stock markets sliding and investors rushing for the safety of currencies like the yen and government bonds on Friday, after U.S. President Donald Trump announced tariffs on up to $60 billion of Chinese goods.

Another bruising week for stocks has left global equity markets heading for their first quarterly loss since early 2016 after a spike in volatility, nervousness about rising inflation and the specter of a trade war spooked investors enjoying a multi-year bull run. 

European stocks fell at the open, with Germany’s Dax down 1.6 percent, the French CAC 40 1.5 percent lower and Britain’s FTSE 100 0.6 percent in the red. 

That followed large falls in the U.S., with the S&P 500 shedding 2.5 percent, and overnight in Asia, where the Japanese Nikkei 225 was the biggest loser slumping 4.5 percent. 

The MSCI World Index, down 3.4 percent since Monday, is on course for its worst week since early February when a spike in volatility sent markets into a tailspin. 

Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60 billion of imports from China, although the measures have a 30-day consultation period. 

China urged the United States to “pull back from the brink”, but investors fear Trump’s tariffs are leading the world’s two largest economies into a trade war with potentially dire consequences for the global economy. 

China disclosed its own plans on Friday to impose tariffs on up to $3 billion of U.S. imports in retaliation against the U.S. tariffs on Chinese steel and aluminum products. 

With investors seeking out safer assets, many jumped into government bond markets in Europe and the United States. 

U.S. 10-year Treasury yields, which fell almost 8 basis points on Thursday, were set for their biggest two-week fall since September. In Europe, benchmark issuer Germany’s 10-year bond yield hovered close to 10-week lows struck a day earlier at around 0.52 percent and was on track for its biggest two-week drop since August, down 13 basis points. 

Many investors also turned to the yen, a currency likely to benefit from a full-fledged trade war. The Japanese currency gained 0.3 percent against the dollar to 104.95 yen, the first time it has been below 105 since November 2016. 

The Swiss franc, another currency bought in times of market uncertainty, rose 0.2 percent versus the dollar, although it remained flat against the euro. 

The dollar fell 0.2 percent against a basket of currencies. 

In commodity markets, oil prices recouped overnight losses after Saudi Arabia said that OPEC and Russian-led production curbs introduced in 2017 will need to be extended into 2019. 

U.S. crude futures were up 0.3 percent at $64.48 per barrel after losing 1.3 percent on Thursday and Brent rose 0.45 percent to $69.22 before giving up most of those gains. 

Safe-haven spot gold rose more than one percent to $1,342 an ounce, its highest since Feb. 20. [GOL/] 

Copper and iron prices both fell, as investors bet demand for the metals would suffer in a trade war. MET/L. 

Daniel Lockyer, senior fund manager at Hawksmoor Investment Management, said financial markets had got ahead of themselves and were failing to price in the risk a number of factors could trigger a sell-off.

Elsewhere, South Africa’s rand firmed 0.4 percent and was set to end the week up around 1.5 percent ahead of a decision by Moody’s on the fate of South Africa’s last remaining investment grade credit rating.

Asian bonds and yen gain as trade war fears drive rush to safety

Asian Stock Markets

The rumblings of a global trade war shook stock and currency markets on Friday after U.S. President Donald Trump announced long-promised tariffs on Chinese goods and Beijing pledged to fight any such war to the end. 

S&P futures ESc1 were down 0.6 percent, suggesting a weaker open on Wall Street later in the day.

Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60 billion of imports from China, although they have a 30-day consultation period, raising the chance that final measures could be watered down.

Investors fear that the U.S. measures could escalate into a trade war, with potentially dire consequences for the global economy.

Beijing urged the United States on Friday to “pull back from the brink”.

China unveiled its own plans on Friday to impose tariffs on up to $3 billion of U.S. imports in retaliation against U.S. tariffs on Chinese steel and aluminium products.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 2.5 percent as stocks across the region dropped. For the week, the index recoiled over 4 percent.

Shanghai shares .SSEC were down 3.8 percent.

Japan's Nikkei .N225 dropped 4.5 percent.

Australian stocks lost 1.9 percent, Hong Kong's Hang Seng .HSI was down 3.1 percent, Taiwan shares .TWII slid 1.6 percent and South Korea's KOSPI .KS11 retreated almost 3 percent.

Setting a downbeat tone for Asia, the Dow .DJI on Thursday shed 2.9 percent, the S&P 500 .SPX dropped 2.5 percent and the Nasdaq .IXIC fell 2.4 percent.[.N]

As equities took a beating, the yen, often sought in times of market turmoil, rallied against the dollar.

The greenback fell roughly 0.5 percent to as low as 104.635 yen JPY=, its weakest since November 2016. The dollar was down more than 1 percent on the week.

The 10-year Japanese government bond (JGB) yield dipped to a four-month trough of 0.020 percent JP10YTN=JBTC.

Safe-haven spot gold XAU= rose to $1,339.12 an ounce, highest since March 7. [GOL/]

Other commodities did not fare as well amid the trade war fears, with copper on the London Metal Exchange CMCU3 falling to a three-month low of $6,628.00 per tonne. [MET/L]

Iron ore futures on China’s Dalian Commodity Exchange DCIOcv1 lost more than 5 percent.

Japanese yen raced to highest level in more than 16 months

Asian Stock Markets

The Japanese yen raced to its highest level in more than 16 months and the Swiss franc surged on Friday as the growing threat of a trade war prompted investors to take shelter in perceived low-yielding currencies. 

With short positions in the yen at near record highs, according to weekly positioning data, thanks to years of using the Japanese yen as a funding currency to buy high yielders, markets braced for some unwinding of those bets. 

The dollar fell to as low as 104.635 yen on Friday, the greenback's lowest level since November 2016. The dollar was last down 0.5 percent at 104.80 yen JPY=EBS. 

The broad rise in the yen came as financial markets were rattled by worries over rising U.S.-China trade tensions. 

U.S. President Donald Trump signed a presidential memorandum on Thursday that will target up to $60 billion of Chinese products with tariffs, but only after a 30-day consultation period that starts once a list of goods is published. 

The broad rise in the yen came as financial markets were rattled by worries over rising U.S.-China trade tensions. 

A gauge of stress in the U.S. money markets climbed to its highest level in nearly nine years on Tuesday on concerns about growing costs for banks and other companies to borrow dollars and further interest rate increases from the Federal Reserve. 

The gap between the three-month dollar London interbank offered rate USD3MFSR= and three-month overnight indexed swap rate USD3MOIS= expanded to 58 basis points, the widest since May 2009, according to Thomson Reuters data. 

In a week that the U.S. Federal Reserve broadly stuck to its “dot plot” on future interest rate moves and signaled a relatively upbeat outlook for the economy, 10-year U.S. Treasury yields are on track to post its second biggest drop so far this year, further weighing on the greenback. 

Against a basket of its rivals, the dollar .DXY was on track to fall 0.2 percent, taking its weekly losses to about 0.6 percent, its biggest drop in a month. 

The Swiss franc CHF= was also the other notable winner in currency markets this week with a 0.6 percent rise. 

In other currencies, sterling GBP=D3 was relatively stable in the backdrop of an EU summit with the British currency changing hands at $1.4107.

Markets wave off global risks; Simmering fears of a global trade war.

Global Stock Markets

An embarrassing political scandal in Japan. Rapid job-turnover inside the White House and the threat of faster interest rate hikes in the United States. 

In any other era, this concoction would be a perfect recipe for heightened market volatility. But in recent months, markets have brushed aside risks and recurring bad news on geopolitics to stay focussed on positive macro-economic cues. 

And Guy Debelle, the Australian central banker who oversaw a review of global foreign exchange standards, says it doesn’t make sense. 

Investors got a taste of what the spike in volatility might look like when in early February fears of faster U.S. rate hikes hammered world shares.

That sell-off was short-lived, though, and equity prices are now not too far from their February highs.

A gauge of market volatility .VIX is near all-time lows, while most estimates of the term premium for 10-year Treasuries US10YT=RR are around zero, or even negative, despite projections of multiple rate rises by the U.S. Federal Reserve this year and next.

This comes at a time the world is seeing the first synchronised global growth since 2007, with strong corporate earnings and blistering job-creation.

Higher rates could all but dampen the optimism, and that is just one of the many risks.

The danger of a global trade war looms after U.S. President Donald Trump slapped duties on imported steel and aluminium and has threatened further tariffs on Chinese goods. 

In Japan, a cronyism scandal has engulfed Prime Minister Shinzo Abe and Finance Minister Taro Aso, causing uncertainty around political stability. 

Yet the market response so far: stay calm and look away. 

Despite shock events like Britain’s vote to leave Europe, the threat of a euro-zone break up and the potential for a nuclear war with North Korea, market volatility spiked only temporarily. 

In fact, equity returns last year were among the highest since the 2008 global financial crisis. 

Emerging markets did well too, and the Australian dollar AUD=D4, considered a barometer for global risk, jumped 8.7 percent in 2017, its best performance in seven years. 

For Shane Oliver, Sydney-based head of investment strategy at AMP Capital, risks can create chances to buy.

China warns of 'necessary response' in event of trade war with U.S.

Asian Stock Markets

China will make a necessary response in the event of a trade war with the United States, Foreign Minister Wang Yi said on Thursday, while warning that such a war would only harm all sides. 

 

U.S. President Donald Trump is expected to establish tariffs of 25 percent on imported steel and 10 percent on imported aluminum this week, but the White House has said there could be a 30-day exemption for Mexico and Canada and some other countries based on national security.

Such a move aims to counter cheap imports, especially from China, that Trump says undermine U.S. industry and jobs. His administration has faced growing opposition to the tariffs from prominent congressional 

Republicans and business officials worried about their potential impact on the economy.

Wang, speaking on the sidelines of an annual meeting of China’s parliament, said China and the 

United States did not have to be rivals, and history showed that trade wars were not the correct way to resolve problems.

Trump addressed trade with China in tweets on Wednesday, demanding that it lay out plans for reducing its trade surplus with the United States by $1 billion, which appeared to have been raised during a meeting with a top Chinese official last week.

Especially given today’s globalization, choosing a trade war is a mistaken prescription. The outcome will only be harmful, Wang said. China would have to make a justified and necessary response, he said.

China ran a record goods trade surplus with the United States last year of $375.2 billion.

Trade tensions between the world’s two largest economies have risen since Trump took office in 2017, and although China only accounts for a small fraction of U.S. steel imports, its massive industry expansion has helped produce a global glut of steel that has driven down prices.

Trump is also considering potential trade sanctions against China under a “Section 301” investigation into its intellectual property practices and pressure on foreign companies for technology transfers.

Diplomatic and U.S. business sources say the United States has all but frozen a formal mechanism for talks on commercial disputes with China because it is not satisfied it has met its promises to ease market restrictions. 

China’s latest trade date released on Thursday showed its February exports rose 44.5 percent from a year earlier, beating market expectations, while imports grew 6.3 percent. That left it with a trade surplus of $33.74 billion for the month. 

China’s trade performance rebounded in 2017 and logged a strong start this year thanks to robust demand at home and abroad. 

But the rapidly escalating trade tensions with the United States are clouding the outlook for exports, while a cooling property market may curb domestic demand for imported raw materials such as iron ore.