SHANGHAI (Reuters) – Asian equities lost losses on Tuesday after strong Wall Street declines overnight, the yen strengthened and US Treasury yields declined when the trade war between China and the US increased.
PHOTO PHOTO: A man reflects on an electronic card that shows a graph analyzing the recent change of the Nikkei stock index outside a brokerage firm in Tokyo, Japan, on 7 January 2019. REUTERS / Kim Kyung -Hoon
In early trading on Tuesday, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%, touching its lowest level since February 15th.
Australian equities fell 1.2%, while the Japanese stock index Nikkei fell 1.9%.
US e-mini stock futures in the US S & P 500 were flat near seven-week lows.
China announced today that it would impose higher tariffs on $ 60 billion of US assets after last week's Washington decision to raise its $ 200 billion in Chinese imports.
The office of the US Trade Representative also announced that it plans to hold a public hearing next month on the possibility of imposing duties of up to 25% on additional $ 300 billion of imports from China.
The tariff escalation has shaken global markets, although US President Donald Trump said that he will meet with Chinese President Xi Jinping next month.
On Monday, the Dow Jones Industrial Average fell 2.38% to 25.324.99, the S&P 500 lost 2.41% to 2.981,87 and the Nasdaq Composite fell 3.41% to 7647.02.
As investors crowded into safe-haven assets, US Treasury yields remained close to six-week lows early Tuesday. The 10-year benchmark Treasury notes fell 2.3962% compared to a 2.405% US close on Monday.
The two-year yield, which increases with traders' expectations of higher federal funds rates, fell to 2.1782% from a US closing of 2.193%, with CME group data showing a probability of more than 75% of cut rates of the Fed by the end of 2019.
Emphasizing market concerns over the economic impact of trade warfare, 10-year yields remained below those on quarterly Treasury bills. A prolonged reversal of this part of the yield curve preceded any recession in the United States over the last 50 years.
On Monday, some operators were worried that China, the largest foreign creditor in the United States, could download Treasury securities to counter the hardening of the Trump administration's commercial position. But most analysts downplayed this possibility.
"If China had started selling Treasury bonds, it would galvanize both political parties in the United States against China and the Fed would be sent to the market to buy bonds," said McKenna Macro strategist Greg McKenna in a note to clients.
"This would expand its budget but allow it to neutralize China's efforts to disrupt US financial markets. So I doubt they will try to sell Treasuries."
The dollar fell 0.1% against the yen to 109.20.
The single currency grew by 0.1% on the day to $ 1.1234, while the dollar index, which replicates the greenback against a basket of six main rivals, was slightly below 97.285.
Concerns over an escalation of trade war also hit the commodity markets, dropping US crude oil from 0.11% to $ 60.97 a barrel. Brent crude was 0.3% at $ 70.01 a barrel.
The rose of the gold in the midst of wider market jitters, with trading of spot gold at 0.25% at $ 1.302.96 per ounce. (GOL /) Bitcoin gained 1.9% at $ 7,959.16.
Reporting by Andrew Galbraith; Additional report by Richard Leong on NEW YORK; Editing by Richard Borsuk
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