Global markets down on trade war worries

05/04/2018 05:39 AST

Stock markets recoiled on Wednesday as China retaliated in an escalating trade war with the United States, leaving investors reluctant to take positions in anything but the safest of assets.

US shares rose on Tuesday on the view that President Donald Trump's Twitter attacks on retailer Amazon would not translate into actual policy.

Yet trade worries were never far away. Late on Tuesday, the Trump administration announced 25 per cent tariffs on $50 billion of annual imports from China, covering about 1,300 industrial technology, transport and medical products.

China responded with penalties on $50 billion of US goods ranging from soybeans, cars and chemicals to whisky, cigars and tobacco with its Vice Finance Minister stressing the country had never given in to external pressure.

The moves triggered further heavy selling in global stock markets and commodities, with US stock futures sliding 1.4 per cent, soybean futures plunging 4.5 per cent and the dollar and China's yuan both hit.

In Europe, London's FTSE, Paris's CAC40 and the export-heavy German DAX fell between 0.6 per cent and 1.2 per cent.

"The market should be focused on it because it's (US protectionist measures are) bad news," fund manager Ashmore's head of research, Jan Dehn, said. Trump denied on Wednesday that the United States was in a trade war with China.

The Organisation for Economic Co-Operation and Development's head Angel Gurria said the US exports $150 billion of goods a year to China whereas China exports $500 billion to the US, meaning China's tariffs were therefore not proportional.

The swing in risk sentiment put the pep back into bonds, with yields on US 10-year Treasury debt down three basis points at 2.75 per cent.

Borrowing costs also nudged lower in Europe even as the first March reading on eurozone inflation, important data for markets as the European Central Bank looks to wind down its massive monetary stimulus, came in firm at 1.4 per cent.

Benchmark Bund yields slipped back under 0.50 per cent, just off 2-1/2 month lows hit last week.

MSCI's broadest index of Asia-Pacific shares outside Japan had spent most of its session dithering either side of flat before ending 0.3 per cent lower.