Fundamental Comment

Trade war worries continue to rattle markets on US-China escalation


Worries of trade war dominated investors’ vibes on Tuesday amid escalation between the United States and China that could end up with sharp decline in global growth.

The spark was on Friday when US President Donald Trump approved a first round of levies on about $50 billion in Chinese products, while Beijing fired back by threatening to impose duties on $50 billion in U.S. goods, including oil.

Overnight, Trump threatened to impose a 10% tariff on $200 billion of Chinese imports, while Beijing pledged to hit back comprehensive quantitative and qualitative measures and retaliate forcefully.

This could be the real beginning of a global trade war between the world’s two biggest economies, which would eventually weigh on global growth.

Asian stocks dropped to a four-month low on Tuesday, with China's Shanghai composite sinking 3.8% to 2,906.43, marking the lowest level since late June 2016.

European shares are currently trading in red, where the Euro STOXX 600 index plunged 1.16 percent to 381.64.

Investors resorted to safe havens, yen, franc and gold, and the U.S. dollar.

The USDJPY plummeted to 109.67, the EURCHF dropped to 1.1494 and gold soared to $1280.66 an ounce.

The dollar index, which tracks the green currency’s movements versus a basket of major currencies, advanced to 94.77.

Traders seem to consider the dollar a better option during tensions, given the Fed’s plans to raise interest rates two more times this year and probably three rate increases in 2019.

Commodities currencies fell versus the green currency, led by the Canadian dollar that hit a one-year low of 1.3251.

China’s yuan slid to a low of 6.4490 to the dollar, marking its weakest level since January 15.

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