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Global stocks slip on tariffs, Argentina hit by capital controls

Stock MarketsSep 02, 2019 08:14AM ET
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© Reuters. The German share price index DAX graph at the stock exchange in Frankfurt

By Ritvik Carvalho

LONDON (Reuters) - Global markets remained subdued on Monday after the United States and China imposed new tariffs on each other, while the spotlight returned to emerging-market risk as Argentina imposed capital controls.

Argentina's international dollar bonds dropped to record lows, its financial stocks tumbled and risk premia shot up after President Mauricio Macri re-imposed capital controls on Sunday as the country battled to avoid its ninth sovereign default.

The about-face by Macri, who had previously lifted many protectionist practices of his predecessor, Cristina Fernandez de Kirchner, came after the government failed to stem heavy investment outflows and to shore up its tumbling currency.

MSCI's All-Country World Index, which tracks shares across 47 countries, was down 0.04% on the day.

U.S. markets were shut for a holiday on Monday. European shares ticked higher as surprisingly positive data helped China weather the latest round of tit-for-tat tariffs between the United States and China that came into effect over the weekend.

Washington imposed 15% tariffs on a variety of Chinese goods and China began to impose new duties on a $75 billion target list. However, both sides will still meet for talks later this month, U.S. President Donald Trump said.

Trade-sensitive German shares were 0.4% higher and the pan-European stocks benchmark index STOXX 600 was up 0.63% by midday in London, beginning September higher. It fell 1.6% in August as the trade war intensified.

"Despite the market's sanguine take, we believe the ultimate outlook for the trade dispute has become harder to predict with confidence," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

"Since trade tensions have become the major driving force for stocks, even greater than monetary policy, we advise against adding significantly to equity exposure – particularly for those who have an adequate strategic allocation."

Income-generating carry positions such as select emerging market currencies will perform well as central banks ease policy in response to weaker growth, Haefele added.

Euro zone manufacturing activity contracted for a seventh month in August as declining demand sapped optimism, a survey showed, strengthening expectations for monetary easing by the European Central Bank next week.

At its July meeting, the ECB all but promised to ease policy as the growth outlook worsened.

Italian bond yields fell toward recent multi-year lows after Italy's prime minister said at the weekend talks on a new government should be completed by Wednesday. The 5-Star Movement and the Democratic Party held talks over the weekend on cabinet posts and a common agenda.

In currency markets, the dollar was 0.1% higher against a basket of peers.

The euro was 0.2% lower at $1.09665 (EUR=), not far from two-year low of $1.0963 hit in U.S. trade on Friday.

TRADE WAR

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.24%, led by 0.5% drop in Hong Kong's Hang Seng (HSI) after another weekend of violent anti-government protests.

Chinese shares rose, however, with the CSI300 index (CSI300) gaining 1.1% despite the trade row escalation. A pledge by China's State Council to boost support for the economy helped.

Caixin/Markit Manufacturing Purchasing Managers' Index (PMI), a private sector survey, on Monday showed factory activity unexpectedly expanded in August, though gains were modest and contrasted with official data that pointed to further contraction.

Washington imposed tariffs on a variety of Chinese goods and while Beijing imposed new duties on U.S. crude, the latest escalation in a bruising trade war. Studies suggest the tariffs will cost U.S. households up to $1,000 a year.

Many market players say the market's reaction was likely exaggerated by algorithm-driven players' flows in thin trading at the start of Asian trade on Monday. Liquidity could be even more limited than usual because of a U.S. holiday on Monday.

"(The market move) goes to show you how many data mining algos are involved with equity-linked compared with forex-linked. Was anyone surprised by these tariffs that took effect yesterday?" said Takeo Kamai, head of execution at CLSA in Tokyo.

Tension is also running high in Hong Kong. Police and protesters clashed in some of the most intense violence since unrest erupted more than three months ago.

Thousands of protesters blocked roads and public transport links to Hong Kong airport and police made several arrests after demonstrators smashed CCTV cameras and lamps and dismantled station turnstiles.

China, eager to quell the unrest before the 70th anniversary of the founding of the People's Republic of China on Oct. 1, has accused foreign powers, particularly the United States and Britain, of fomenting the unrest.

Oil prices fell on Monday. Brent crude futures dropped 0.15% to $59.16 a barrel; U.S. West Texas Intermediate (WTI) crude futures were flat at $55.1.

Global stocks slip on tariffs, Argentina hit by capital controls
 

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Comments (6)
Paul Dunne
Paul Dunne Sep 02, 2019 3:12AM ET
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Good to see that Chinese and European stocks have slipped upwards.
Chris Sundo
Chris Sundo Sep 02, 2019 2:45AM ET
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REMEMBER CCP = ISIS of China. CCP = KLEPTOMANIACs who steal from the Chinese people and shove the money outside of country. CCP made a billion dollar 'deal' with Hunter Biden, son of Joe Biden, next USA prez, to invest China's people's hard-earned and stolen from type of money,China people's private money in 'off-shore heaven USA' for the benefit of their CCP families. As a result Joe Biden (foreign minister to B. Obama) looked the other way when China built the artificial islands in the South China Sea, and voila, a double win for the CCP. They must have been laughing their heads off in the process. --- Anyway, China's very own ISIS is he^ll_bent on shifting money and wealth from Chinese ordinary citizens, including Jack Ma (he had to sign over ALL his shares in Alibaba to the CCP). All dictatorships do it the same way: incarcerate the smart, confiscate their wealth, change the constitution to rule forever, and NEVER RETURN FOREIGN INVESTMENT. All for Money & Power! How small of them.
Chris Sundo
Chris Sundo Sep 02, 2019 2:22AM ET
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"..over concerns Beijing is undermining democratic freedoms in the territory.." -- China is def testing the waters here and the resolve of HKG ppl who are def in their legal right to uphold democratic freedoms until at least 1997+50yrs by contractual obligations = 2047, ie another 28 yrs. Whow CCP is seriously  dreamer/manipulator here by thinking they could get their way 28 yrs ahead of schedule. --- CCP is worried they might not exist anymore by 2047 coz meanwhile the dum^best of the dum_best Chinese and the most brai_nwashed of the most brai^nwashed Chinese has AWOKEN and revolted enough to kick out the CCP by 2047 ...
Chris Sundo
Chris Sundo Sep 02, 2019 2:10AM ET
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"..private survey on Monday showed factory activity unexpectedly expanded in August.." meaning China is improving internally. --- "..market players say the market's reaction was likely exaggerated by algorithm-driven players' flows in thin trading conditions at start of Asian trade on Monday. Liquidity could be even more limited than usual because of a U.S. (and CANADA=def.closed) (USA observed BUT USA) market (remains open) holiday on Monday. => I hunch that TUE due to light holiday trading might be a s/term bottom ie buy the dip, then TUE could be a turn-around day perhaps late in the day on a retest of Monday(Sep2)'s Low ... Hunching coz many ppl expect the market to drop due to sheer negativity but market usually does 'unexpected' shenanigans ... will see  :)
Chris Sundo
Chris Sundo Sep 02, 2019 2:10AM ET
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Corr .. I meant that TUE, due to light holiday trading ON MONDAY, could be a s/term bottom, ie buy the dip on MONDAY & retest on TUE
Sep 02, 2019 2:10AM ET
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Chris Sundo thank you
Chris Sundo
Chris Sundo Sep 02, 2019 2:10AM ET
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Corr2 .. USA stock markets are closed on Labor Day.  It would take Labor to keep it open and today is Labor Day. --- -- So, after I checked with https://investing.com's Tools page I compared the market closing days and was able to find that I had incorrectly claimed in my above post that USA market would cause a dip on Monday with a retest on Tuesday. --- So, perhaps the 'W' stretches across to WED or gets shrunk into a 'V' on TUE since Trump still pushes for Trade talks for SEP.
Tom Sam
Tom Sam Sep 02, 2019 1:39AM ET
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If you ignore China you MUST be living in a bad dream.
Buzzy Jefferson
Buzzy Jefferson Sep 02, 2019 12:38AM ET
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If you’re not Chinese, there’s no need for gloom. The rest of the world is open for business! Just get to work and ignore China. Everything will be fine.
 
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