Markets bleed in fresh round of tariff war, made in America

MUMBAI: An escalating trade dispute between the US and China returned to haunt financial markets across the world with Indian stocks and rupee falling on Tuesday. Asian and European stocks fell after US President Donald Trump threatened to impose a fresh round of tariffs on Chinese goods in the latest round of trade war rhetoric between the global economic giants.

Foreign portfolio investors dumped shares worth almost ?1,325 crore on Tuesday. Sensex fell 261.52 points, or 0.74per cent, to close at 35,286.74 while Nifty dropped 89.40 points, or 0.83per cent, to close at 10,710.45.

The rupee lost 0.5per cent, or 39 paise, against the dollar amid a rush for safe-haven US-backed assets. The local currency closed at 68.38 a dollar compared with 67.99 a day earlier. “The global dollar strength has weighed on all emerging market currencies including rupee,” said Anindya Banerjee, currency analyst, Kotak Securities. “Investors are seeking safety of safe-haven assets amid uncertainties triggered by trade wars and tightening monetary policies.”


The rupee weakness may remain unless the trade war fears ease, he said. The decline in local stocks, however, was less sharp compared to other Asian markets. Japan’s Nikkei slumped 1.77 per cent, China’s Shenzhen Composite tumbled 5.77per cent, Hong Kong’s Hang Seng dropped 2.76 per cent and South Korea’s Kospi fell 1.31per cent.

India Less Impacted Due to Export Size

Dow Futures were down more than 300 points while European markets were down 1-2 per cent at the time of going to print on Tuesday evening. The perception that India would be less impacted in a trade war saved the day for equity investors.

“The ongoing trade war between US and China has definitely impacted investor sentiments across the globe, but India is less impacted due to our export size,” said Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services.

US president Trump said the country would consider imposing a 10 per cent tariff on $200 billion of Chinese goods. The threat was in retaliation for China’s move to raise tariffs on $50 billion of US goods.

On the BSE, about 1,923 stocks declined while 703 stocks gained, an indication of the outstretched weakness in the broader market. Metal stocks like Jindal Steel, Hindalco, Vedanta and SAIL slipped over 2-4per cent led by fall in base metal prices on the London Metal Exchange.

Fund managers and analysts said India could be less impacted by the trade dispute but its stock market will not be insulated if the matter worsens. The drop in oil prices amid the conflict also came as a relief to investors. Brent oil on Tuesday fell 0.6 per cent to $74.87 a barrel.

The market is closely watching the outcome of the meeting between the Organization of the Petroleum Exporting Countries (Opec) and a group of non-cartel countries later this week.

Hopes are high that they would decide to increase production but the extent of the output boost would determine the sentiment in the global financial markets. For India, a decline in crude prices will be a key sentiment booster as lower oil prices and strong monsoon are expected to ease inflationary pressures.

“Softening of crude oil prices and good monsoon will work in favour of Indian markets,” said Agrawal.