Asia stocks roiled following US slide as trade worries deepen
Asian equity markets tumbled and currencies gyrated on Tuesday in response to the latest escalation in tensions between the US and China, while the renminbi held relatively steady a day after weakening beyond the crucial Rmb7 mark to the dollar.
Stock markets opened markedly lower, with the Topix down as much as 2.9 per cent before paring its losses to trade down 0.8 per cent in afternoon trading, leaving its year-to-date performance flat.
Among China-focused stocks, the CSI 300 index of Shanghai- and Shenzhen-listed equities fell 2 per cent. Hong Kong’s Hang Seng pulled back to a 0.7 per cent fall from 2.6 per cent earlier, following a day of mass strikes and demonstrations that crippled the city, deepening the political crisis in the semi-autonomous territory.
The slide followed Wall Street’s worst one-day fall this year after the US named China a “currency manipulator” overnight, prompted by the renminbi’s breach of Rmb7 to the dollar on Monday for the first time in 11 years, escalating the trade war between the two countries.
Currency markets changed direction as the trading day wore on. The onshore variant of the renminbi, which is permitted to trade 2 per cent to either side of a daily midpoint set by China’s central bank, was flat in afternoon trading as it hovered near an 11-year low, pulling back from earlier losses. The offshore renminbi, which is more freely traded, was up 0.4 per cent after an initial dip. Beijing has pledged to ensure its currency’s stability.
The Japanese yen strengthened as much as 0.4 per cent to ¥105.51 against the dollar, before turning sharply lower and losing 0.6 per cent to trade at ¥106.61.
Tai Hui, chief market strategist at JP Morgan Asset Management, said: “The latest move by the Trump administration…is another major setback to the possibility of a trade agreement”. The decision “is expected to hit risk appetite further, following a sharp drop [for] Wall Street yesterday”.
Traders in Tokyo described the Topix’s dip below the 1,500 line at Tuesday’s open as “a bit ugly” but stressed that dealing rooms were still not seeing anything like a major capitulation or a “panic trade”.
In bond markets, the yield on 10-year US Treasury notes edged up after falling 12 basis points in the previous session due to strong demand for the safety of government debt. The yield on Australia’s 10-year bond slid as much as 9 basis points to below 1 per cent, hitting a record low.
Overnight in the US, a broad-based sell-off sent the S&P 500 down 3 per cent while the Nasdaq Composite closed down 3.5 per cent — their biggest respective declines since December. The Cboe’s Vix, a measure of volatility nicknamed Wall Street’s “fear gauge”, jumped above 23 points for the first time since mid-May.
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Additional reporting by Leo Lewis in Tokyo