Markets shed risk, seek refuge in gold as US, China fire trade war's first shots

ASIAN stock markets and the US dollar fell on Friday morning while gold rose as analysts warned of a long-drawn trade dispute and weak risk appetite as the United States and China announced plans to impose tariffs on imports from the other country.

Pan Jingyi, a market strategist at IG Group, said: "For the short term, it does look like we have further trade frictions to be jittery about, and every right to exercise caution."

Asian stocks were a wash of red in early trading on Friday. Singapore's Straits Times Index dropped 1.7 per cent, or 57.98 points, to 3,433.39 as at 10.05am with losers dominating gainers 281 to 39, or about seven stocks down for every one up.

Japan's Nikkei 225 index fell 3.49 per cent to 20,840.38, while Hong Kong's Hang Seng shed 3.28 per cent to 30,050.97. Australia's S&P/ASX 200 declined 1.99 per cent to 5,819.60.

The retreat came after the United States announced overnight that it would impose tariffs on up to US$60 billion of Chinese imports, especially products from the technology sector. In retaliation, Beijing has come up with a list of US products, with an import value of about US$3 billion, that it is considering for tariffs.

Ms Pan said that the development "does change the equation and one should not rule out that possibility that we are at the start of a long-drawn trade dispute."

Trade exposed markets like Singapore and Hong Kong could be especially vulnerable in the fallout, she said: "The local Singapore market, one sensitive to external factors and particularly trade, would find it a difficult session ahead."

She said that "evasion towards havens appear to be the clear choice for the day".

On Friday, one US dollar could buy about 1.3151 Singapore dollars, down S$0.0005. Against the Japanese yen, the greenback was worth 0.76 yen less, to 104.85 yen.

Gold, however, rose US$7.28 on Friday to reach US$1,337 per ounce. Spot Brent crude gained 1.23 per cent, or US$0.85 per barrel, to US$69.76 per barrel.

Stephen Innes, head of trading for the Asia-Pacific at Oanda, said: "We're in a flat out risk-averse mode with looming trade wars pressuring global equity markets and providing a fillip to gold prices as investors are rotating out of equity positions into gold."

Despite the markets signalling concern about a trade war, Nomura said that the United States overall tariff plans were less hawkish than initially feared.

In a note, the research house said: "The US recently dropped one of the more contentious demands in the (North American Free Trade Agreement) renegotiations and has provided temporary steel and aluminum tariff relief to a large set of countries. Taken together, and although the Trump administration may still become aggressive on trade, the actions in the past week have reduced overall US trade policy risks."

Nomura said that the US tariffs did not materially affect its economic forecast.