SINGAPORE (AP) — Global markets fell Monday as weaker-than-expected Asian economic surveys ratcheted up worries over the potential impact of higher tariffs due to be imposed by China and the U.S. in a festering trade dispute. Over in Europe, a prolonged German government crisis weighed on sentiment.
KEEPING SCORE: European shares fell in early trading. Germany’s DAX dropped 0.5 percent to 12,242.80 and France’s CAC 40 lost 1.0 percent to 5,270.37. Britain’s FTSE 100 shed 0.8 percent to 7,573.61. Wall Street was poised to open lower. Dow futures fell 0.6 percent to 24,130.00 and broader S&P 500 futures were down 0.5 percent to 2,708.50.
ASIA’S DAY: Asian markets were overshadowed by weaker than expected Chinese manufacturing data and a softening in Japan’s economic outlook. Japan’s benchmark Nikkei 225 index plunged 2.2 percent to 21,811.93 and South Korea’s Kospi shed 2.4 percent to 2,271.54. The Shanghai Composite index tumbled 2.5 percent to 2,775.56 while Australia’s S&P/ASX 200 lost 0.3 percent to 6,177.80. Hong Kong’s markets were closed for a market holiday. Taiwan’s benchmark fell but Southeast Asian indexes were mixed.
GERMAN CRISIS LINGERS: German Chancellor Angela Merkel has been locked for weeks in a bitter migrant dispute with her Bavarian allies. The government crisis was prolonged on Sunday when Germany’s interior minister Horst Seehofer offered to resign instead of backing down from his stance against the chancellor’s migration policies. Seehofer is determined to turn away some types of asylum-seekers at Germany’s borders, but Merkel has insisted on Europe-wide solutions to handling the waves of foreigners trying to reach the continent. There’s little sign of a possible compromise and the standoff could spell the end of Merkel’s fourth government.
WEAK CHINESE DATA: China’s manufacturing activity slowed in June, adding to concerns that the economy is cooling due to tighter government controls on lending. The National Statistics Bureau’s purchasing managers’ index, which was released on Saturday, declined to 51.5 from May’s 51.9 on a 100-point scale. Numbers above 50 show acceleration. Exports, which support millions of manufacturing jobs, have shrunk as a share of China’s economy and contribute less than 1 percent of annual growth. On Monday, China’s Caixin Manufacturing PMI for June came in at 51.0, slightly lower than 51.1 in May.
JAPAN’S TANKAN: A central bank survey showed Japan’s corporate outlook has worsened from three months ago, highlighting risks to its export-reliant economy from trade tensions. The Bank of Japan’s “tankan” survey measuring confidence among large-scale manufacturers was at 21 points, down 3 from the March survey, which was the first decline in two years. The manufacturers surveyed include automakers and electronics companies that are the mainstay of Japan’s economy.
U.S-CHINA TARIFFS: The U.S. is set to impose a 25 percent tariff on up to $50 billion of Chinese products starting this Friday. In response, China will raise import duties on $34 billion worth of American goods. On Sunday, Canada started billions of dollars in retaliatory tariffs against the U.S., in a tit-for-tat response to the Trump administration’s duties on Canadian steel and aluminum. The items include ketchup, lawn mowers and motor boats. Some items will be subject to taxes of 10 or 25 percent. The U.S. has also faced hit back from the European Union. Iconic American motorcycle maker Harley-Davidson will move some production overseas to avoid tariffs the European Union is placing on motorcycles made in the U.S.
ANALYST’S TAKE: “There is caution over the imposition of tariffs this weekend. Taken together, weaker-than-expected data gives markets room for thought on whether Trump protectionism has seeped into the real economy,” said Song Seng Wun, an economist at CIMB Private Banking.
ENERGY: Trump has claimed that Saudi Arabia will raise oil production by “maybe up to 2,000,000 barrels” in response to turmoil in Iran and Venezuela. This is higher than the 1 million barrels-a-day increase that OPEC countries have agreed on, sending oil futures on a decline. Benchmark U.S. crude fell 36 cents to $73.79 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained 1 percent to $74.15 a barrel in New York on Friday. Brent crude, used to price international oils, fell 73 cents to $78.50 in London.
CURRENCIES: The dollar ticked up to 110.81 yen from 110.74 yen in late trading Friday. The euro weakened to $1.1642 from $1.1695.
Investing.com – Here are the top five things you need to know in financial markets on Monday, July 2:
1. U.S.-Europe Trade Tension Escalates
The European Union has threatened to impose new retaliatory tariffs worth $300 billion, if the U.S. moves forward with tariffs on European cars.
President Donald Trump, who has repeatedly criticized the EU over its trade surplus with the U.S. and for having higher import duties on cars, said last week that the government was completing its study and suggested the U.S. would take action soon.
The latest development in the brewing global trade war comes only days ahead of a U.S. move to impose $34 billion of tariffs on Chinese exports on Friday. Beijing is expected to respond with tariffs of its own on U.S. goods.
2. Dow Futures Drop More Than 100 Points
The trading week was set to kick off on a downbeat note on Wall Street, with U.S. stock futures pointing to sharp losses at the open, as worries over a brewing trade war between the U.S. and its major trading partners kept buyers on the sidelines.
At 5:35AM ET, the blue-chip Dow futures were down 155 points, or around 0.6%, the S&P 500 futures slumped 16 points, or 0.6%, while the tech-heavy Nasdaq 100 futures indicated a loss of 50 points, or roughly 0.7%.
There are no major earnings scheduled for today.
Elsewhere, European markets were under pressure, as automakers and miners, seen among the sectors most at risk of a trade war, led losses. Among national indexes, Germany’s DAX index slumped as concerns about Chancellor Angela Merkel’s coalition weighed on sentiment.
Earlier, Chinese markets led losses in Asia, with major markets in the region closing sharply lower. The Shanghai Composite tumbled 2.5% and fell further into a bear market, while the yuan, fresh off its worst month on record, continued to lose ground against the dollar.
3. Dollar In Demand As Euro Slides
Away from equities, the U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was 0.3% higher at 94.50.
Demand for the dollar continued to be underpinned by the relative strength of the U.S. economy and the prospects of additional rate hikes by the Federal Reserve this year.
Against the safe-haven yen, the greenback was little changed at 110.80, pulling back after hitting a six-week high of 111.06 overnight.
In the bond market, the U.S. 10-year Treasury yield dipped slightly to around 2.83%.
Meanwhile, the euro came under pressure after Germany’s interior minister offered to resign amid an escalating row over immigration policy, throwing into doubt the future of Chancellor Angela Merkel’s coalition government.
Elsewhere, Mexico’s peso gained after leftist candidate Andres Manuel Lopez Obrador won Mexico’s presidential election on Sunday with a big margin that may herald a congressional majority.
4. Oil Falls After Trump Tweets Hints At Higher Saudi Output
Oil prices slumped after U.S. President Donald Trump surprised traders by announcing an impromptu agreement with Saudi Arabia to add more supply to increasingly tight oil markets.
In an early morning tweet on Saturday, Trump said Saudi Arabia’s King Salman had agreed to his request to increase crude production “maybe up to” 2 million barrels to help offset a decline in supply from Iran and Venezuela.
International benchmark Brent futures were recently down 75 cents, or roughly 1%, at $78.48 a barrel, while U.S. crude futures on the New York Mercantile Exchange were down 37 cents, or 0.5%, at $73.78.
5. Global Manufacturing PMIs Lose Momentum
Downbeat manufacturing activity readings from Europe and China further added to the risk-off mood, in a worrying sign the Trump administration’s “America First” protectionist policies could derail global growth.
Euro zone factory growth slowed to an 18-month low in June, slipping for the sixth month in a row, a survey showed. New orders growth slid to its lowest in nearly two years, amid widespread concerns about trade barriers and their impact on overall economic activity.
In the UK, British factories kept up a steady pace of growth in June but worries about global trade and Brexit knocked confidence about the outlook to a seven-month low, according to survey data.
Elsewhere, growth in China’s manufacturing sector cooled in June as firms faced rising input costs and a decline in export orders amid an escalating trade dispute with the U.S., a private survey showed. The survey revealed new export orders contracted for the third straight month and the most in two years.
Investors and traders are worried that threats of higher U.S. tariffs and retaliatory measures by others could derail a rare period of synchronized global growth.