In light of the escalating tit-for-tat trade war, which so far shows no signs of stopping, and to the contrary appears to be accelerating, S&P futures have fallen sharply throughout the session, while Dow futures are -340 points, with the cash index set for its 6th consecutive down day.
The MSCI index of Asia-Pacific shares outside Japan fell 1.9 percent to its lowest since early December. The losses intensified through the day as the rout deepened in China where the 3,000 support level in the Shanghai Composite finally gave way as Beijing's "National Team" plunge protectors failed to step in after Monday's holiday, resulting in the lowest close in nearly two years as the Shanghai Composite Index plunged 3.8%, its lowest since June 27, 2016, while Hong Kong's Hang Seng .HSI shed as much 3 percent before ending 2.8% down.
“Trump appears to be employing a similar tactic he used with North Korea, by blustering first in order to gain an advantage in negotiations,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.
“The problem is, such a tactic is unlikely to work with China.”
Predictably, hardest hit were tech stocks which stand to suffer the most in any direct trade war, with Orient Securities, 360 Security Technology plunging by the 10% daily limit, while the tech heavy Shenzhen Composite index crashed -5.9%, while the ChiNext Index of small-cap and tech shares slumped 4.8%, to its lowest level in more than three years, and is now 61% below peak reached in June 2015. Not even the PBOC adding liquidity with 200BN MLF operation and net 50BN reverse repo injection helped boost sentiment.
China’s economy has already been clouded by a sharp slowdown in fixed asset investment growth due to the government’s deleveraging drive, a problematic property sector, a mounting debt burden and rising credit defaults. Economists at Nomura wrote, “The rising risk of a disruptive trade conflict makes a bad situation tentatively worse.”
Elsewhere, Japan's Nikkei lost 1.8%, South Korea's KOSPI dropped 1.3% while Australian stocks bucked the trend and added 0.1%, helped by a depreciating currency and an overnight bounce in commodity prices.
In Europe it was more of the same, with the Stoxx Europe 600 tumbling for a third day. The stock move in Europe was tempered by a weaker euro, however, which unlike its reaction to last week's trade jitters, promptly tumbled, wiping out all of Monday's gains. European mining stocks lead the Stoxx 600 Index down to touch lowest level since late-April; the export-heavy DAX underperformed, sliding 1.4% as automakers continue declines.
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