SYDNEY, May 13 2019 : U.S. stock futures fell and Asian shares slipped in early trade today on growing uncertainty over whether the United States and China will be able to reach a deal to end their trade war after Washington sharply hiked tariffs.
E-Mini futures for the S&P 500 shed 1.1 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.2 per cent, nearing its two-month low marked on Thursday.
Japan’s Nikkei average sunk as much as 1.0% to hit its lowest level since March 28. It last traded down 0.6 per cent,
U.S. benchmark 10-year Treasury note yield inched down to 2.437 per cent, partly as a safe haven but also on speculation a trade war would cloud global growth and thus keep major central banks accommodative.
The United States and China appeared at a deadlock over trade negotiations yesterday as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.
President Donald Trump tweeted late yesterday that the United States is “right where we want to be with China,” adding that Beijing “broke the deal with us” and then sought to renegotiate.
The trade war between the world’s top two economies escalated on Friday, with the United States hiking tariffs on $200 billion worth of Chinese goods after President Donald Trump said Beijing “broke the deal” by reneging on earlier commitments. China has vowed to retaliate, without giving details.
Beijing remained defiant.
“Talks are on-going, but our base case is for limited progress and Chinese retaliation. We see a significant risk for all Chinese imports to be subject to tariffs over the next month or so,” said Michael Hanson, head of global macro strategy at TD Securities.
“The market reaction will ultimately depend on whether China and the U.S. continue to negotiate, whether the remaining $325 billion of U.S. imports from China also get tariffed, how China retaliates, and what happens to the 232 auto tariffs.”
Under that scenario, the renminbi was likely to fall between 5-6 per cent against the U.S. dollar in the coming three months, said Hanson, as a shock absorber to the economic impact of heavier tariffs.
The other major currencies were relatively calm, with the safe-haven yen still supported but not aggressively so. The dollar was holding at 109.72 yen, down 0.2 percent on the day and just above a 14-week trough of 109.46.
The euro was steady at $1.1235, while the dollar was a fraction softer against a basket of currencies at 97.295 .
The offshore Chinese yuan fell to its lowest levels in more than four months at 6.88 to the dollar. It last stood down 0.5 percent at 6.878 per dollar.
Oil prices were softer in line with the general mood of risk aversion. U.S. crude was last down 0.5 percent to $61.33 a barrel, while Brent crude futures lost 0.2 percent to $70.49. – Reuters