LDN - Business

Trade row slams stocks, yuan slumps to lowest in over a decade

[August 05, 2019] By Ritvik Carvalho

LONDON (Reuters) - Global stocks fell for a sixth day on Monday as an escalation of a trade war between the United States and China spooked markets and the yuan fell to its lowest levels in over a decade.

Safe-haven assets, including the Japanese yen, core government bonds and gold, rallied.

The pan-European STOXX 600 index <.STOXX> shed 2% on top of the 2.5% it lost on Friday -- its worst day so far in 2019 -- after U.S. President Donald Trump signaled another round of tariffs on Chinese imports. The index was also on track for its biggest two-day decline in over three years. [.EU]

"Markets had not been expecting the latest US-China trade talks to conclude with any significant breakthrough last week, but very few expected President Trump to slap 10% tariffs on $300 billion worth of Chinese goods," said Hussein Sayed, chief market strategist at FXTM.

MSCI's All Country World Index <.MIWD00000PUS>, which tracks shares in 47 countries, was down 0.7% on the day. Including Friday's loss, that put it down almost 2%.

Asian shares suffered their steepest daily drop in 10 months, with MSCI's broadest index of Asia-Pacific shares <.MIAPJ0000PUS> outside Japan sinking 2.5% to depths not seen since late January.

The VIX <.VIX> volatility index - also known as Wall Street's "fear gauge" - rose to 21.48, its highest level since May 9. Europe's equivalent <.V2TX> hit its highest since early January. S&P 500 futures <ESc1> were 1.4% lower.

"We reiterate our view to scale back equity positions to strategic allocations after strong gains year to date, amid the ongoing trade-related uncertainties," Credit Suisse analysts wrote in a note to clients.

The biggest mover in currencies was the yuan, which fell past the key level of 7 to the dollar as Chinese authorities - expected to defend the currency at that level - allowed it to break through to its weakest in the onshore market since the 2008 global financial crisis.

In offshore markets, the yuan <CNH=EBS> fell to its weakest since international trading of the Chinese currency began. Headed for its biggest one-day drop in four years, it was last down 1.6% at 7.090 in offshore markets. [FRX/]

"Over the past couple of years, China has kept the renminbi stable against the basket, but with the renminbi TWI (trade-weighted index) now testing the lower end of the range in play since 2017, investors may turn nervous, introducing another dose of volatility," Morgan Stanley strategists wrote in a note to clients.

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A man sits in front of a board showing market information at a securities brokerage house in Beijing, China August 5, 2019. REUTERS/Thomas Peter

The currencies of other Asian economies closely linked with China's growth prospects also dropped.

The Korean won <KRW=> fell 1.4% against the dollar, on course for its biggest one-day loss since August 2016. The new Taiwan dollar fell more than 0.7% <TWD=>.

BID FOR SAFETY

Japan's yen, which investors tend to buy in times of risk aversion, rose 0.7% to its highest since a January flash crash. <JPY=>

Dutch 30-year government bond yields turned negative for the first time as euro zone yields sank further amid concerns about U.S.-China trade and a no-deal Brexit. [GVD/EUR]

U.S. 10-year yields <US10YT=RR> fell to 1.7599%. Germany's 10-year bund yields fell to as low as -0.53% <DE10YT=RR>.

The Swiss franc <CHF=> was also boosted by safe-haven demand. Trump is also eyeing tariffs on the European Union, but has yet to make a formal announcement. The euro <EUR=> surged, gaining 0.6% to the dollar at $1.1172.

Against a basket of currencies, the dollar fell to its lowest since July 25. <DXY=>

Sterling plunged to a 23-month low against the euro and near a 31-month low versus the dollar as fears of a disorderly Brexit grew. [GBP/]

Oil extended losses with U.S crude <CLc1> down 1% at $55.1 and Brent <LCoc1> down 1.2% at $61.17.

Gold prices jumped more than 1% to their highest in more than six years, with spot gold prices up 1.1% to $1,456.51 per ounce. <XAU=>

(Reporting by Ritvik Carvalho; additional reporting by Marc Jones in London; editing by Larry King)

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