Stocks find some support after China-linked jitters

Wall Street shares found some tentative support on Friday after a bout of jitters spread through the world’s largest financial capitals as Beijing signalled it was prepared to go toe to toe with the Trump administration in erecting new punitive tariffs.

The announcement by China that it has prepared retaliatory tariffs on 128 US products, accounting for roughly $3 billion (€2.4 billion) in imports, sent European shares down sharply earlier in the day, with the regional Stoxx 600 index hitting its lowest level since February 2017 before regaining ground follwing a more upbeat US open. That followed big drops in Hong Kong, Tokyo and Shanghai. The Iseq was trading 0.28 per cent lower by mid-afternoon.

US stocks held their ground at the open on Friday following a sharp sell-off in the previous session. At the open, the US S&P 500 was up by 0.4 per cent.

The Chinese move could be only a sign of what is to come, however: the plans - which include a 15 per cent tariff on US steel pipes, fresh fruit and wine and a 25 per cent tariff on pork and recycled aluminium - only address the White House’s steel and aluminium tariffs announced earlier this month.

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Beijing has yet to respond to tariffs announced by president Donald Trump on Thursday on up to $60 billion in annual Chinese imports. Those much more wide-ranging tariffs are aimed at Beijing for what the White House said was punishment for decades of unfairly acquiring US intellectual property.

China’s US ambassador, Cui Tiankai, said the accusations against his country were “groundless” and warned that Beijing would stand up for itself.

“We don’t want a trade war,” he said. “But we are not afraid of it...We will certainly fight back and retaliate. If people want to play tough, we will play tough with them and see who will last longer.”

Banks and stocks exposed to global trade, such as airlines, were among the sectors hit the hardest in Europe as investors tried to price in what the knock-on effects of the move in Washington would be.

Toxic cocktail

“It’s just a toxic cocktail of events,” said Rich Bernstein, of Richard Bernstein Advisors. He added that the market had earlier been assuaged by the Trump administration’s intention to grant steel and aluminium tariff exemptions to its allies.

“But now it’s looking more like a true trade war,” Mr Bernstein said. “I’m astounded that for some reason we think this is beneficial economic policy. I just don’t get it.”

Deutsche Bank, Germany’s largest lender by assets, was one of the worst large performing shares in Europe, hitting the lowest level since late 2016 before regaining some ground. Other companies in Europe to suffer included the steelmaker ArcelorMittal, as well as the airlines Air France and Deutsche Lufthansa.

Germany’s Dax was down by 0.95 per cent in afternoon trading, while France’s CAC 40 was off 0.93 per cent and the UK FTSE 100 was down 0.3 per cent.

– Copyright The Financial Times Limited 2018