SINGAPORE – Asian markets wobbled Friday on signs that China and the U.S. were preparing to impose more tariffs on each other’s products.
Japan’s Nikkei 225 lost 0.5 percent to 22,652.42 and South Korea’s Kospi dropped less than 0.1 percent to 2,281.69. Hong Kong’s Hang Seng slipped 0.6 percent to 27,858.02. The Shanghai Composite Index edged 0.1 percent lower to 2,769.06. Australia’s S&P-ASX 200 bucked the regional trend, adding 0.4 percent to 6,286.00.
WALL STREET: U.S. indexes finished mostly lower. The S&P 500 index lost 0.4 percent to 2,804.49 on Thursday. The Dow Jones Industrial Average gave up 0.5 percent to 25,064.50. The Nasdaq composite dipped 0.4 percent to close at 7,825.30. The Russell 2000 index of smaller-company stocks gained 0.6 percent to 1,701.31. Smaller companies tend to do better than larger ones when trade tensions flare up because they do a greater proportion of their sales in the U.S.
YUAN DECLINES: The People’s Bank of China set the Chinese currency’s central parity rate to 0.9 percent weaker against the dollar on Friday. This sent ripples through Asian markets. If the yuan continues to depreciate, goods exported to China will become more expensive to consumers there. Chinese exports would also be relatively cheaper, possibly balancing out suggested increases in tariffs by the Trump Administration.
ANALYST’S TAKE: “One theory is that the PBOC is depreciating the yuan because it has not enough ammunition to fight a dollar-for-dollar increase in tariffs. The markets are very risk-off. There is a loss in confidence right now,” said Francis Tan, an economist at UOB Bank.
AUTO TARIFFS REJECTED: The U.S. Commerce Department sought feedback on President Donald Trump’s plans to consider taxing auto imports on Thursday. Critics lined up to urge the administration to reject auto tariffs. They argued that the taxes would raise car prices, squeeze automakers by increasing the cost of imported components and invite retaliation from U.S. trading partners – and allies – like the European Union and Canada. The Alliance of Auto Manufacturers rejected the levies on car, truck and auto parts imports, saying the view was shared by over 2,200 comments it had received.
WEEK AHEAD: Investors are keeping an eye on the European Central Bank policy meeting and data on how the U.S. economy performed in the second quarter. They will also be looking out for more U.S. corporate earnings, such as those from tech giants like Google, Amazon and Facebook.
INTEREST RATES: In an interview with CNBC on Thursday, President Trump said that he was “not happy” about Federal Reserve’s recent interest rate increases. The Fed has raised its benchmark rate for a second time this year and projected two more increases in 2018. Its rate hikes are meant to prevent the economy from overheating and igniting high inflation. But rate increases also make borrowing costlier for households and companies and can weaken the pace of growth. The president acknowledged that his comments about the Fed would likely raise concerns, as the central bank has long been operating free of political pressure.
CURRENCIES: Trump’s comments caused the greenback to decline slightly. The U.S. dollar extended its losses on Friday, easing to 112.35 yen from 112.46 yen. The euro rose to $1.1655 from $1.1644.
OIL: Benchmark U.S. crude dropped 12 cents to $68.12 per barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the contract settled at $68.24 a barrel. Brent crude, used to price international oils, remained flat at $72.58.
Meanwhile, US President Donald Trump has indicated that he’s willing to hit every product imported from China with tariffs, sending US markets sliding before the opening bell Friday.
In a taped interview with the business channel CNBC, Trump said “I’m willing to go to 500,” referring roughly to the $505.5 billion worth of goods imported last year from China.
The administration to date has slapped tariffs on $34 billion worth of Chinese goods in a trade dispute over what it calls the nation’s predatory practices.