HONG KONG, China (AFP) — Asian markets largely fell Tuesday, but pared back heavy losses following a rout on Wall Street as investors fretted over the US-China trade war.
A sharp fall in the Chinese yuan’s value against the dollar — breaching the 7.0 level seen as a key threshold by investors — prompted Washington to formally designate Beijing as a currency manipulator.
Tensions have escalated since US President Donald Trump last week announced fresh tariffs on Chinese goods from September 1, which would subject virtually all of the $660 billion in annual merchandise trade between the world’s two top economies to punitive duties.
On Monday, the yuan dropped to its lowest level to the dollar since August 2010, fuelling speculation that Beijing was devaluing its currency to support exporters and offset Trump’s latest threat to hit $300 billion in Chinese goods with 10 percent tariffs.
The slide in the yuan’s value drew sharp criticism from Trump who called it “a major violation which will greatly weaken China over time”.
China fired back Tuesday, with the central bank saying it is “resolutely opposed” to the US designation. Trump has repeatedly accused China of currency manipulation — charges Beijing has long denied.
Beijing’s prior policy on the yuan had been to purchase foreign currencies, in part to avoid triggering capital outflows, but analysts said further weakening was likely.
“Continued yuan depreciation should be expected, albeit at a staggered pace,” said Edward Moya, senior market analyst at OANDA.
“Currency wars are taking centre stage,” he warned, adding that “Beijing is likely to tolerate further weakness and we could see another 5% before the end of the year.”
Beijing has vowed to hit back if Washington goes ahead with its latest threat and Chinese state media late Monday reported that firms in the country have stopped buying US farm produce.
Multiple rounds of tit-for-tat tariffs between the two countries have hammered trade, fanning fears for the health of the global economy.
– Grim outlook –
Wall Street suffered its worst sell-off of the year on Monday, with the blue-chip Dow Jones Industrial Average sinking 2.9 percent.
Tokyo opened nearly three percent lower on Tuesday before recovering to end the day 0.7 percent down.
Hong Kong was down 1.1 percent, paring back losses after sinking more than two percent at the open. Shanghai shed 1.6 percent. But Mumbai rose 0.5 percent and Bangkok edged up 0.2 percent.
European markets also made a modest recovery after Monday’s slump, with Paris adding 0.2 percent and Frankfurt gaining 0.4 percent at the open Tuesday. But London lost 0.5 percent in early trade.
Although Chinese and US negotiators are set to reconvene in Washington in early September for another round of talks after last week’s discussions in Shanghai, investors are not expecting a reprieve in the near future, analysts said.
“China is gearing up for a long trade battle with the US”, said Rodrigo Catril, senior strategist at National Australia Bank.
“Recent events suggest a US-China trade deal is unlikely… any time soon and indeed it seems reasonable to expect trade tensions to get worse before they get better.”
– Key figures around 0700 GMT –
Tokyo – Nikkei 225: DOWN 0.7 percent at 20,585.31 (close)
Hong Kong – Hang Seng: DOWN 1.1 percent at 25,861.30
Shanghai – Composite: DOWN 1.6 percent at 2,777.56 (close)
London – FTSE 100: DOWN 0.5 percent at 7,188.32
Pound/dollar: UP at $1.2158 from $1.2143 at 2100 GMT
Euro/pound: DOWN at 92.11 pence from 92.26 pence
Euro/dollar: UP at $1.1207 from $1.1202
Dollar/yen: UP at 106.43 yen from 105.95 yen
Brent North Sea crude: UP 59 cents at $60.40 per barrel
West Texas Intermediate: UP 58 cents at $55.27 per barrel
New York – Dow: DOWN 2.9 percent at 25,717.74 (close)
© Agence France-Presse