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Trump ratchets up trade tension.China leads broad sell-off as US prepares tariffs on a further $200bn in imports

What you need to know: Escalation of trade war sours mood. China-focused stocks lead broad sell-off; European bourses set to follow. Renminbi weakens. Pompeo hints at Iran oil sanction waivers.

StockMarketNews.Today – China-focused stocks led a broad sell-off in Asia-Pacific equities and the renminbi slid after US President Donald Trump kicked off the process of imposing tariffs on a further $200bn of imports from China, escalating the trade war between the world’s two largest economies.

European stocks are set to follow, albeit with narrower losses than the 2 per cent declines seen for mainland Chinese indices. According to opening calls from London Capital, Frankfurt’s Xetra Dax will fall 0.7 per cent, with London’s FTSE 100 set to lose 0.5 per cent.

The fall in equities reflected a broader pattern of an immediate sharp reaction to new developments in the US-China trade dispute before markets priced in the specific implications, said JPMorgan Asset Management strategist Hannah Anderson.

“It is going to take investors some time to price that in . . . we can expect that given the size of what’s been announced that the reaction might be a little more negative than it has in prior episodes of trade-related volatility,” Ms Anderson said.

The market should get itself back on track in “a week or two”, but specific sectors targeted by the new tariffs will continue to get hit, she added.

The White House announced that Mr Trump had told the US trade representative to begin imposing levies of 10 per cent on the products.

Robert Lighthizer, US trade representative, said Mr Trump’s decision followed China’s imposition of tariffs on $34bn of US exports and threats of levies on another $16bn. “It did this without any international legal basis or justification,” Mr Lighthizer said.

Beijing’s move came after the US on Friday first imposed new US duties on $34bn of Chinese imports.

Equities:
The CSI 300 of major Shanghai and Shenzhen stocks dropped 1.9 per cent with all market segments declining.

In Hong Kong, the Hang Seng China Enterprises index of large Chinese companies listed in the territory fell 2.1 per cent, while the broader Hang Seng index shed 1.7 per cent.

Tokyo’s Topix was down 0.9 per cent while in Seoul the Kospi Composite lost 0.4 per cent. In Sydney the S&P/ASX 200 dropped 0.6 per cent.

In the US, where Wall Street had an upbeat session, futures were hit after the bell. S&P 500 futures fell 0.7 per cent, after the main index closed up 0.3 per cent. FTSE index futures were down 0.6 per cent.

Forex:
The Chinese currency was also under pressure. The onshore renminbi — which is subject to a 2 per cent trading band either side of a midpoint — was down 0.5 per cent at Rmb6.6606 per US dollar.

The dollar index was flat. The Japanese yen, typically a haven at times of uncertainty, edged down 0.1 per cent to ¥110.07.

Fixed income:
Sovereign debt markets were largely steady. The yield on US 10-year Treasuries fell 1 basis point to 2.842 per cent, while that on the equivalent Australian note fell 1 bps to 2.617 per cent and the yield on 10-year Japanese government bonds was unchanged.

Commodities:
Oil prices cooled after Mike Pompeo, US secretary of state, said that oil sanctions waivers may be granted to countries seeking relief from tough White House measures against Iran set to start in November.

Brent crude, the international benchmark, was down 0.9 per cent at $78.13 a barrel in Asia-Pacific trading. West Texas Intermediate, the key US price, shed 0.7 per cent to $73.60 a barrel.

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