Asian shares were weaker on Friday with investors bracing for the threatened US tariffs to China. Meanwhile, the euro neared two-week lows after a careful European Central Bank hinted at the possible non-movement of its interest rates for some period.
US President Donald Trump has already decided to impose “pretty significant” tariffs. He is scheduled to unveil a list that targets $50 billion worth of Chinese goods this Friday, according to an administration official. Meanwhile, Beijing has said that it was ready to respond, possibly through a similar list of steep tariffs aimed at American goods.
Even if it still remains unclear whether Trump will really activate the tariff duties, the simmering US-China trade frictions will put extra pressure on China’s economy, which is already starting to exhibit signs of cooling under the pressure of a multi-year campaign against riskier lending.
Analysts agreed that even though the expected announcement would not really a complete surprise to the markets, since an initial list was shown by Washington a few months ago, it would still spark concerns that the chance of settling the trade spat between the two countries may be near zero.
The Asia Pacific MSCI broadest index not including Japan crept down 0.3 percent, with several regional markets ignoring the strong close on Wall Street. However, Japan’s Nikkei average and Australian shares gained 0.3 percent and 1.2 percent respectively.
“The implementation of tariffs on China is one of several fronts that the US is battling on the issue of trade,” stated Tai Hui, who is chief APAC market strategist at JPMorgan Asset Management, pertaining to Trump’s administration’s aggressive stance toward Canada and France.
“This battleground could potentially expand into the auto sector given the US investigation into auto imports. This is likely to weigh on market sentiment over the summer,” he added.
Meanwhile, the euro is on track for its largest weekly lost in 19 months following the ECB’s clues that hinted the bank will keep the interest rates at record lows until at least 2019. This is so even if the bank has already pledged to end its massive bond purchase scheme by the end of 2018.
The euro lost 1.9 percent against the dollar after the interest rate comments. This was its sharpest daily fall in nearly two years since the shocking Brexit vote in 2016.
During the Asian trade on Friday, the common currency eased 0.1 percent to $1.1555, which was its lowest level since May 30.
Meanwhile, the US dollar index, which gauges the dollar’s strength against a basket of six other major currencies, advanced around 0.2 percent to 94.996, which is its highest level in two and half weeks after it rallied higher than 1 percent during the previous day.
The 10-year German bond yield also decreased to 0.424 percent from near 0.50 percent prior to the ECB statement.
“The ECB has made it clear that it does not want quick rate hikes, although it now considers progress towards the inflation target as ‘substantial’. Against the background of uncertainties in the world today – such as trade – this makes sense, as does the emphasis on data dependency,” stated Stefan Kreuzkamp, who is the chief investment officer at DWS.
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