Stocks Gain on Watered-Down Tariffs; Pound Slips: Markets Wrap

September 18,2018

Global markets reacted to the latest escalation of the U.S.-China trade spat with relative calm on Tuesday. Asian stocks jumped, S&P 500 futures edged higher and European shares advanced after America set its next round of tariffs at 10 percent and the Asian nation pledged to retaliate.

While the timeline for fresh levies on $200 billion on Chinese goods announced by President Donald Trump represents an escalation of the protectionist dispute, it will be months before the tariffs hit the 25 percent level some investors have been preparing for. Asia equities recovered from early weakness, with benchmarks in Japan and Shanghai rallying. The Stoxx Europe 600 Index also overcame a soft start as automakers and miners jumped.

China’s yuan erased a drop, suggesting traders had been anticipating the latest tariff salvo. The dollar was steady as the euro pared a gain and the pound fell. Treasuries slipped and European government bonds were mixed, with Italian debt underperforming after a report of yet more tension over the country’s impending budget.

Trump has already vowed to increase pressure on China if the Asian nation retaliates to U.S. tariffs, which raises the risk of a tit-for-tat escalation between the world’s two biggest economies. However the rhetoric has been running for months, and many assets have priced in rising tensions, helping to cushion the latest blow.

“The tariff rates will only be lifted to 25 percent in January so there’s still time and room for China and U.S. to engage in negotiations,” said Zhang Gang, Shanghai-based strategist with Central China Securities. “The U.S. moves are completely uncontrollable but China can manage its policies to counter the impact and stabilize its economy.”