Sharp falls in stock exchanges, yuan is the most affected.. and the reason is Trump tweet.
The global markets lost millions of dollars as they opened yesterday, with markets falling sharply on Monday, with the sharpest decline in Asia as concerns about trade escalated following US President Donald Trump’s sudden announcement that he would impose strict tariffs on $200bn of imported Chinese products during the week, raising concerns again about a global slowdown and ending a period of relative calm in the global markets.
On Sunday, Trump stepped up the trade war by announcing a surprise increase in tariffs from 10% to 25% on Chinese products worth $200bn a year.
US stocks opened sharply lower yesterday; DJI was down by 344.33 points, equals to 1.30 % at 26160.62, SPX was down by 36.75 points, equals to 1.25%, at 2,908.89, and IXIC Index fell by 182.15 points, equals to 2.23%, to 7,881.85.
The Asian markets were severely hurt, all of which closed down sharply. The shock was echoed in Europe, where a sharp drop was recorded before noon, although it did not reach the level of decline in Asia.
In China, the SSEC in Shanghai Stock Exchange lost 5.58% to 2,906.46 points, and SZSE Component Index fell 7.38% to 1,515.80 points as well as SEHK declined 2.9% at closing.
In Europe, STOXX Europe 600 index of European shares lost 1.2% by 07:20 GMT, marking the biggest drop in six weeks and SXAP fell 3%, leading to a wide decline among different sectors in Europe.
At 09:19 GMT, the Frankfurt Stock Exchange was down by 2.09% at 12,154 points, while the Paris Stock Exchange fell 2.06% to 5,428.98 points. The Milan Stock Exchange shed 2.19%, while the Zurich Stock Exchange index fell 1.82% to 9564.35 points.
In London, markets were closed on a holiday. Investors’ expectations were high as China-US trade negotiations drew to a close, amid expectations of an agreement by the end of the month. The prospect of an agreement between China and the United States was one of the reasons for the strong rally this year. Stock indexes in most countries recovered after heavy losses last year to hit their highest levels in several months.
“Donald Trump has tightened pressure on China in the last phase of the negotiations, and it may be a trick to extract concessions, but it is a double-edged sword because this strategy is likely to upset Beijing.” said Tangi Le Libo, a strategist expert at Aurel BGC Brokerage.
China announced on Monday that it was still planning to send trade negotiators to the United States despite Trump’s decision. In the currency markets, the Chinese yuan headed to its biggest decline in ten months yesterday, after the threat of Trump, while currencies, such as the yen, jumped in risk aversion.
“This could lead to a global risk aversion, especially after the recent calm in the markets,” said Ulrich Leuchtmann, the head of foreign exchange strategy at Commerzbank AG, research division.
China’s currency led the losers with its descent by about a percentage point, approaching its lowest level this year at about 6.80 per dollar. The Mexican peso and the Turkish lira fell more than half a percentage point each. Other currencies that are bound by the Chinese economy have fallen, such as the Australian and New Zealand dollars, which have fallen between 0.3% and 0.5%.
Apart from weakness in the yuan and other emerging market currencies such as the Turkish lira, the dollar steadied sharply against a basket of currencies.