Asia markets plunge on trade war fears; safe-haven yen rallies against US dollar

Pedestrians walking past the electronics stock indicator at the window of a security company in Tokyo.
Pedestrians walking past the electronics stock indicator at the window of a security company in Tokyo.PHOTO: AFP

TOKYO (REUTERS) - Asia stock markets slid and perceived havens such as government bonds and the yen gained on Friday (March 23) as investors rushed to safety after US President Donald Trump announced long-promised tariffs on Chinese goods, stoking fears of a global trade war.

Trump signed a presidential memorandum on Thursday that could impose tariffs on up to US$60 billion of imports from China, although the measures have a 30-day consultation period.

Investors fear that the US measures could escalate into a trade war, with potentially dire consequences for the global economy.

China unveiled plans on Friday to impose tariffs on up to US$3 billion of US imports in retaliation against U.S. tariffs on Chinese steel and aluminium products.

"The economic impact on both China and the US will be determined by what form the tariffs end up taking. The effects are likely to be felt more strongly in the US and increase both consumer and producer prices," wrote Hannah Anderson, global market strategist at J P Morgan Asset Management.

"The equity market will bear the brunt of the market reaction. Most impacted will be the US, Korea, and Taiwan as companies domiciled in these markets make up a significant portion of the global production chain of Chinese exports."

MSCI's broadest index of Asia-Pacific shares outside Japan tracked a large overnight drop in Wall Street shares and fell 2.4 percent.

Australian stocks lost 1.9 per cent and Japan's Nikkei dropped 3.2 per cent. South Korea's KOSPI retreated 2.3 per cent and Taiwan shares slid 2 per cent.

Hong Kong's Hang Seng sank 3.6 per cent and Shanghai lost 2.8 per cent.

In Singapore, the Straits Times Index was down 1.75 per cent at 3,430.38 around 9:45am.

Overnight, the Dow shed 2.9 per cent, the S&P 500 dropped 2.5 per cent and the Nasdaq fell 2.4 per cent.

As equities took a beating, the yen, often sought in times of market turmoil, rallied against the US dollar.

The greenback fell roughly 0.5 percent to as low as 104.635 yen, its weakest since November 2016. The dollar was down more than 1 percent on the week.

"In the longer run, protectionist policies touted by the United States could be watered down, in turn limiting the negative effect on trade and the global economy," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo, referring to the decision by the United States to exempt some countries from steel and aluminium tariffs.

"But until the United States makes such concessions, global stocks will be under pressure and the yen will appreciate, especially if China decides to confront the US measures."

The euro was 0.2 per cent higher at US$1.2352.

The dollar index against a basket of six major currencies slipped 0.25 per cent to 89.649. It has lost roughly 0.6 per cent on the week, weighed down by a steady decline in US Treasury yields.

Yield on the benchmark 10-year Treasury yield fell 7.5 basis points overnight as bond prices rose on jitters gripping the broader financial markets.

The yield stood at 2.802 per cent after going as low as 2.799 per cent the previous day. Thursday's fall was the 10-year note's biggest decline in yield since September 2017.

Oil prices recouped overnight losses after Saudi Arabia said that OPEC and Russian-led production curbs introduced in 2017 will need to be extended into 2019.

US crude futures were up 1.2 per cent at US$65.08 per barrel after losing 1.3 per cent on Thursday and Brent gained 1 per cent to US$69.58 per barrel.

Other commodities did not fare as well amid the trade war fears, with copper on the London Metal Exchange extending a big overnight drop and falling to a three-month low of US$6,640.00 per tonne.