European and American stocks ventured higher yesterday following a meltdown in Asia as financial markets seemed to march in lockstep with tweets by US President Donald Trump on the trade front.
The yuan hit an 11-year low after Trump ramped up his trade war with China by hiking tariffs on more than half-a-trillion dollars worth of imports.
But Asian investors later pared steep losses when the president said that a fresh round of talks between US and Chinese negotiators would “start very shortly”.
“China called last night... said let’s get back to the table, so we’ll be getting back to the table,” Trump told reporters.
“This trade war is having more plot twists than a Quentin Tarantino movie,” said Edward Moya, an analyst with Oanda.
Trump later added that trade talks with China were “more meaningful than at any time”, prompting cautious buying first in Europe and then later on Wall Street, where the Dow Jones index rose about one per cent at the opening bell, having lost 2.4 per cent on Friday.
Trump’s trade decision on Friday had stunned investors who ran for the hills, hammering European and Wall Street stocks.
Safe havens such as the yen and gold – go-to assets in times of turmoil and uncertainty – surged.
Friday’s tariff hike came in response to Beijing’s decision to raise levies on $75 billion of US goods. US tariffs on $250 billion of Chinese goods are to rise to 30 per cent and those planned on $300 billion in Chinese products are to go to 15 per cent from October 1.
Many investors no longer trust Trump’s statements, even when they appear to be reassuring, analysts said.
“Despite President Trump’s tweets reflecting positive discussions between the two countries, actions show the opposite,” said Hussein Sayed, chief market strategist at FXTM.
“It now seems to many market participants that negotiations may get out of control, and likely lead to steeper selloff in risk assets.”
China’s yuan currency fell to its weakest level since early 2008 at the height of the global financial crisis. The flight to safer havens saw gold jump to a six-year high, while the Japanese yen touched its strongest level since the end of 2016.
But both assets pared their gains later, and oil rebounded amid rekindled trade talk hopes.
Trade war news overshadowed a broadly dovish speech by Federal Reserve boss Jerome Powell on Friday, where he pledged to ensure US growth and pointed to fresh stimulus if inflation softens.
Back in Europe, investors took a dim view of a German business leader survey showing their confidence fell to its lowest level since 2012 in August.
“Germany is on the threshold of a technical recession,” said KfW economist Klaus Borger.