Stocks tumble, bonds and yen gain as trade war fears drive rush to safety

A pedestrian walks past at an electronics stock indicator, including a share prices in Tokyo. (Photo: AFP/Kazuhiro Nogi)

Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60 billion of imports from China, although the measures have a 30-day consultation period.

Investors fear that the US measures could escalate into a trade war, with potentially dire consequences for the global economy.

Beijing urged the United States on Friday to "pull back from the brink".

"China doesn't hope to be in a trade war, but is not afraid of engaging in one," the Chinese commerce ministry said in a statement.

China unveiled its own plans on Friday to impose tariffs on up to US$3 billion of US imports in retaliation against US tariffs on Chinese steel and aluminium products.

MSCI broadest index of Asia-Pacific shares outside Japan fell 2.2 per cent as stocks across the region dropped.

Shanghai shares were down 3.3 per cent.

"The economic impact on both China and the US will be determined by what form the tariffs end up taking. The effects are likely to be felt more strongly in the US and will increase both consumer and producer prices," wrote Hannah Anderson, global market strategist at JP Morgan Asset Management.

"The equity market will bear the brunt of the market reaction. Most impacted will be the US, Korea, and Taiwan as companies domiciled in these markets make up a significant portion of the global production chain of Chinese exports."

Japan's Nikkei dropped 5.1 per cent, the lowest level since early Oct 5 last year, while the broader Topix index dropped 3.62 per cent or 62.45 points, to 1,664.94.

Meanwhile, Australian stocks lost 2.1 per cent and Hong Kong's Hang Seng was down 2.8 per cent, Taiwan shares slid 1.7 per cent and South Korea's KOPS retreated 2.3 per cent.

Singapore's Straits Times Index fell at open was down by 2.7 per cent at about 2.30pm.

"A possible trade war between the United States and China is especially serious for the South Korean economy as it could directly or indirectly affect the country's trade with them as well," said Se Sang-young, an analyst at Kiwoom Securities.

Setting a downbeat tone for Asia, the Dow on Thursday shed 2.9 per cent, the S&P 500 dropped 2.5 per cent and the Nasdaq fell 2.4 per cent.

As equities took a beating, the yen, often sought in times of market turmoil, rallied against the dollar.

The greenback fell roughly 0.5 per cent to as low as 104.635 yen, its weakest since November 2016. The dollar was down more than 1 per cent on the week.

"In the longer run, protectionist policies touted by the United States could be watered down, in turn limiting the negative effect on trade and the global economy," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo, referring to the U.S. decision to exempt some countries from steel and aluminium tariffs.

"But until the United States makes such concessions, global stocks will be under pressure and the yen will appreciate, especially if China decides to confront the U.S. measures."

The euro was 0.3 per cent higher at $1.2334.

The dollar index against a basket of six major currencies slipped 0.3 per cent to 89.609. It has lost roughly 0.7 per cent this week, weighed down by a steady decline in U.S. Treasury yields.

Yield on the benchmark 10-year Treasury fell 7.5 basis points overnight as bond prices rose on jitters gripping the broader financial markets.

The yield fell further on Friday to 2.792 per cent, its lowest in six weeks.

The 10-year Japanese government bond (JAB) yield dipped to a four-month trough of 0.020 per cent.

In commodities, oil prices recouped overnight losses after Saudi Arabia said that OPEC and Russian-led production curbs introduced in 2017 will need to be extended into 2019.

US crude futures were up 1.1 per cent at US$64.99 per barrel after losing 1.3 per cent on Thursday and Brent gained 0.9 per cent to US$69.53 per barrel.

Safe-haven spot gold rose to $1,339.05 an ounce, highest since Mar 7.

Other commodities did not fare as well amid the trade war fears, with copper on the London Metal Exchange falling to a three-month low of $6,628.00 per tonne.

Iron ore futures on China's Dalian Commodity Exchange lost more than 5 per cent.

The dollar index against a basket of six major currencies slipped 0.2 per cent to 89.688. It has lost 0.6 per cent on the week, weighed down by a steady decline in US Treasury yields.

Yield on the benchmark 10-year Treasury yield fell 7.5 basis points overnight as bond prices rose on jitters gripping the broader financial markets.

The yield closed Thursday at 2.832 per cent after going as low as 2.799 per cent. It was the 10-year note's biggest fall in yield since September 2017.

Oil prices recouped overnight losses after Saudi Arabia said that OPEC and Russian-led production curbs introduced in 2017 will need to be extended into 2019.

US crude futures were up 1.2 per cent at US$65.08 per barrel after losing 1.3 per cent on Thursday and Brent gained 1 per cent to US$69.58 per barrel.

Other commodities did not fare as well amid the trade war fears, with copper on the London Metal Exchange extending a big overnight drop and falling to a three-month low of US$6,640.00 per tonne.