Market watch: Volatility in markets as US-China trade tensions rise

The US-China trade tariff skirmish is intensifying, and financial markets are paying the price. Following US President Donald Trump’s plan to impose tariffs on $60 billion worth of annual Chinese imports, equity indices in the US saw a steep fall. The Dow Jones Industrial Average and Nasdaq dropped 724 points (down 2.93%) and 179 points (down 2.43%) each at close yesterday.

Following Trump’s move, China too has unveiled a list of 128 US products which it would levy tariff on in retaliation to the US move. This reflected in Asian equity indices trading lower during the day. The Hong Kong Hang Seng Index touched day’s low of 29,930.23, down over 1,140 points, or 3.67% below the previous day’s close of 31,071.05 points. At the close of trade hours, Hang Sang lost 2.45% comapred to previous day, as the index closed 761.76 points lower at 30,309.29 points

“Although protectionism has yet to dampen the global economic outlook, it has started to incrementally weigh on business and investor sentiments,” DBS Bank’s FX strategist Philip Wee and rates strategist Eugene Leow said in a research note.

Meanwhile, Japan’s Nikkei 225 index fell over 1,032 points or a 4.78% fall at the day’s low of 20,559.61 points, compared to previous day close of 21,591.99 points. The 225 stock index closed at 20,617.78 points, registering a fall of 4.51% through 974.13 points.

China’s Shanghai Shenzhen CSI 300 Index, at day’s low point of 3,834.94 points is down by 185.41 points (or 4.61%), compared to previous day close of 4,020.35 points. The index lost 115.41 points at close, to close 2.87% lower at 3,904.94 points.

Back home, the S&P BSE Sensex touched day’s low of 32,483.84, a fall of 522.43 (or 1.58% decline) against the previous day close of 33,006.27 points. The 30-stock index lost 409.73 points, or 1.24% down, at 32,596.54 points.

Similarly, the Nifty 50 too fell 1.61% by 162.85 points to touch 9,951.90 points compared the previous day closing value of 10,114.75 points. At close, the index shedded 116.7 points, or closed 1.15% lower, at 9,998.05 points.

In the aftermath of the US Fed interest rate action announced yesterday, Jerome Powell, the new Chair who succeeded Janet Yellen was reported to have said that trade policy has become a concern going forward. A Morgan Stanley research note quoted Powell, “At this stage, what our FOMC (Federal Open Market Committee) participants discussed, it was just that this is a new risk that had been probably a low-profile risk which has become a more prominent risk to the outlook.”

Wee and Leow mentioned in the note that the Japanese yen has reprised its safe-haven role in anticipation of more “sabre-rattling” between America and China in the coming weeks.

“Even if the current sabre-rattling from the US and China is a prelude to negotiations, further volatility is to be expected as trade tensions simmer,” they said.

Clearly, in a globalised world macroeconomic and geopolitical tensions are bound to affect all and sundry in varying proportions.