LONDON (Reuters) - The market assumption of trade peace has been premature at best. World markets skirting record highs over recent weeks had priced to assume an imminent truce in the U.S.-China trade war that would underline a fourth-quarter trough in global industrial sentiment.
Monday threw a curveball into that consensus. As he departed for this week’s NATO summit near London, U.S. President Donald Trump unexpectedly re-ignited world trade tensions by announcing tariffs on U.S. steel and aluminium imports from Brazil and Argentina – citing “massive devaluations” of their currencies that have hit U.S. farmers.
Alongside simmering anger in Beijing over Washington’s support for Hong Kong’s pro-democracy street protesters, the sudden bellicose trade action raised concerns of another wave of protectionism from the Trump administration as the Dec. 15 deadline for new tariffs on Chinese goods looms without any formal agreement between the two sides yet inked.
China on Monday banned U.S. military ships and aircraft from visiting Hong Kong and slapped sanctions on several U.S. non-government organisations for allegedly encouraging anti-government protesters in the city to commit violent acts. In one of the understatements of the past week, Trump said the Hong Kong law did not help the trade talks.
And adding to fresh heat in global trade relations, the World Trade Organization on Monday rejected European Union claims that it no longer provides subsidies to planemaker Airbus, prompting the United States to say it could increase retaliatory tariffs on a wider range of European goods.
The U.S. government then added it may slap punitive duties of up to 100% on $2.4 billion in imports from France of Champagne, handbags, cheese and other products, after concluding that France's new digital services tax would harm U.S. tech companies.
French Finance Minister Bruno Le Maire countered on Tuesday and said the latest U.S. tariff threats on French products were "unacceptable" and the European Union was ready to issue a riposte.
Reminding everyone of just how fragile the wider troughing of global business sentiment still is, data from the U.S. Institute for Supply Management said on Monday that factory activity contracted for a fourth straight month in November as new orders slumped back to around their lowest level since 2012, while construction spending fell in October, tempering recent optimism over the world’s largest economy.
The net effect to the ropey start to the week was to knock stock markets back across the world, with Wall St’s S&P500 losing almost 1% in its biggest one-day drop in almost 2 months. The Vix equity market volatility gauge surged briefly back above 15% for the first time since October.
The U.S. dollar plunged in response to Trump’s latest exchange-rate sensitivity, fresh pressure on the Federal Reserve for more interest rate cuts and the ISM shock. Its DXY index against other major developed world currencies staged its biggest one-day loss since early September.
The trade angst rang around Asia bourses overnight. Tokyo, Hong Kong and Seoul stocks all ended in the red for the second day, even though Shanghai managed to outperform and clung on to positive territory.
After their worst day in two months on Monday, European stocks stabilised at the open. Elsewhere, the Australian dollar rose 0.34% to $0.6842 after the Reserve Bank of Australia left rates at a record low of 0.75% on Tuesday at its last meeting of the year.
On the European corporate news front, the U.S. tariff threat on French products such as champagne or handbags hit the stocks of companies such as LVMH, Kering, Hermes and L'Oreal. European stocks could also suffer as a whole after the U.S. threat of retaliatory tariffs following the WTO ruling on Airbus.
In terms of individual stocks, the stock in Italy's biggest bank UniCredit rose slightly after it said it would shed 8,000 jobs to reduce costs by 1 billion euros in Western Europe under a new plan to 2023.
Still in Italy, Enel joined a race with at least five other bidders to buy the Renvico wind farm portfolio in Italy and France being sold by a Macquarie-run infrastructure fund. Spanish media group Atresmedia fell at the open after a share placing.
— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —