Tokyo - Fears of a ballooning global trade war sent
Asian stocks sharply lower on Tuesday, following steep falls on Wall Street
amid reports Washington was readying a new phase in its economic confrontation
with China.
President Donald Trump has threatened to strike
back against China's retaliation to the US tariffs that are due to take effect on
July 6.
Trade frictions topped market players' concerns,
with heavy selling in Europe and the US continuing through to Asia after
reports Trump was planning new curbs on Chinese investment.
Shanghai opened down more than 1% while Tokyo began
trade 0.85% in the red.
Asian equities extended their losses in the morning
session, with Shanghai down 1.6% and Hong Kong off by a similar amount.
Washington has already announced it will impose
investment restrictions on Chinese companies by June 30, with the Wall Street
Journal reporting that any firm that is 25% Chinese-held would face curbs.
The reports drove US stocks down 2% at the lowest
point on Monday but they recovered some of their losses after senior White
House economic adviser Peter Navarro sought to ease fears in a TV interview.
Treasury Secretary Steven Mnuchin also rebuffed the
reports but the mixed messages left some traders bemused.
"Despite the rebound, there remains a
considerable degree of scepticism," said Stephen Innes, head of trading at
OANDA, adding that investors were not sure whether the comments were
"diplomatic doublespeak or a meaningful denial."
"The abundance of mixed and no less confusing
signals are causing massive consternation across all asset classes," added
the analyst.
The Dow Jones index finished a see-saw session down
1.3% but the tech-heavy NASDAQ suffered more, ending more 2% lower.
Frankfurt, Paris and London all lost around 2% or
more.
In a concrete consequence of the tit-for-tat trade
blows, US motorbike maker Harley-Davidson said late on Monday it planned to
shift some manufacturing overseas to avoid retaliatory European tariffs imposed
last week.
This sparked a furious response from Trump who said
he was "surprised that Harley-Davidson, of all companies, would be the
first to wave the White Flag," adding that he had "fought hard for
them."
Analysts at Citi wrote in a research note that even
if the current tensions do not blow up into a full-scale trade war, "the
uncertainty is probably already damaging confidence and investment."
But CFRA Research's Sam Stovall said US economic
growth and earnings forecasts "remain solid" despite some downside
risks.
"The biggest uncertainty continues to be the
simmering global trade tensions that we currently think will not morph into a
full-blown trade war," Stovall said. "However, we see volatility remaining
elevated."
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