Asia stocks slump, bonds rise, yen climbs past 105

Sydney - Asian stocks followed their US counterparts lower after President Donald Trump’s decision to slap tariffs on China heightened concern a trade war could hurt global growth. The yen climbed to its strongest in over a year.

Equity indexes from Tokyo to Shanghai tumbled more than 3%. US stock futures also declined, signalling a further retreat for the S&P 500 Index after it tumbled 2.5%, the most in six weeks.

As investors dumped stocks, they rushed to the safety of Treasuries, where yields fell back toward 2.8%, and the yen, which jumped past 105 per dollar for the first time since November 2016. Follow live coverage of reaction here.

The sell-off began after Trump instructed US Trade Representative Robert Lighthizer to levy tariffs on at least $50bn in Chinese imports. Subsequently, China announced plans for reciprocal tariffs on $3bn of imports from the US, including products from steel to pork.

Adding to the image of the ascendance of the "America first" faction, Trump said he is replacing White House National Security Adviser H.R. McMaster with John Bolton, a controversial foreign-affairs specialist whom the US Senate declined to confirm as President George W. Bush’s ambassador to the United Nations. Investor fears of escalating trade tensions are being realized as the US tariffs quickly sparked a reciprocal response from China.

Traders had already been bracing for the possibility of slowing economic growth as the Federal Reserve reiterated its commitment to further interest-rate increases after Wednesday’s hike.

Furthermore, the US president’s continued shake up of his administration’s top ranks adds an additional level of uncertainty to the current geopolitical environment.

Read more on who’s hurting from the Trump trade getting tripped up by tariff trauma

"It’s a significant step in escalation in trade tensions between the US and China," said Paul Eitelman, senior investment strategist at Russell Investments.

"The biggest watch point from here is how China responds to this and any potential escalation that creates going forward. "Elsewhere, oil rebounded back above $65 a barrel.

Gold climbed and industrial metals slipped.

Here are some key events on the schedule for the remainder of this week:

The Bank of Russia’s rate decision is on Friday. US government funding is due to expire at the end of the day on Friday.

And these are the main moves in markets:

Stocks

The MSCI Asia Pacific Index sank 2.2% as of 11:27 am in Hong Kong. Topix index sank 2.8%. Hang Seng index dropped 2.7% and the Shanghai Composite lost 3.2%. Kospi index sank 2.2%. Australia’s S&P/ASX 200 Index decreased 2%. Futures on the S&P 500 Index fell 0.5%.

Currencies

The Bloomberg Dollar Spot Index fell 0.2%. The Japanese yen rose 0.4% to 104.84 per dollar. The euro rose 0.3% to $1.2338.

Bonds

The yield on 10-year Treasuries fell two basis points to 2.80%. Japan’s 10-year yield declined one basis point to 0.028%. Australia’s 10-year yield fell five basis points to 2.65%.

Commodities

West Texas Intermediate crude rose 1.1% to $65.01 a barrel. Gold rose 0.7% to $1 338.75 an ounce.