World stocks dive as Trump threatens China tariffs

PARIS: President Donald Trump sent Asian and European stock markets plunging Monday by threatening to hike tariffs on $200 billion of Chinese goods in a bid to speed up stuttering trade talks between the economic superpowers.

Equities in Asia, Europe and the US were a sea of red as Trump's remarks rekindled fears of a trade war with potentially devastating consequences for world growth.

On Wall Street, the Dow Jones index lost over 400 points at the New York opening bell, while eurozone markets were down by more than 1.5 percent at that time, having earlier plunged more than two percent.

Asian exchanges saw some of the worst falls, with Shanghai plunging more than five percent, and the Chinese yuan also taking a battering after the president threw a spanner into the high-level negotiations.

"For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods," Trump tweeted Sunday night. "The 10% will go up to 25% on Friday."

- 'Sledgehammer, walnut' -

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The warning threw a shadow over the next round of talks ahead of a visit by a Chinese delegation to Washington this week.

A number of news outlets reported that China was considering delaying or cancelling the meeting, but a foreign ministry spokesman said a delegation would head to the US as planned.

"The period of historic calm across global financial markets is staring at the prospect of a rude awakening," said Han Tan, market analyst at FXTM. "Risk-off sentiment has been the response to this swerve from Trump."

The two sides have imposed tariffs on $360 billion in two-way trade since last year. But Trump and China's Xi Jinping agreed a truce in December, fuelling a surge in global stocks for the past four months.

"Trump has taken the proverbial sledgehammer to the walnut this morning and the only two words likely to be on the minds of traders and investors this week are 'trade talks'," said OANDA senior market analyst Jeffrey Halley.

News that the People's Bank of China would slash the amount of cash lenders must keep in reserve, to support small businesses, had little impact in the face of Trump's warning.

- Yuan tumbles -

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"Trade had been put to the side by many market participants," said Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs.

But Trump's threat now "raises the spectre of a significant hit to growth should these tariffs escalate and should the uncertainty associated with that weigh on investment going forward", he told Bloomberg TV.

The yuan sank 1.3 percent at one point against the dollar, its heaviest fall in more than three years.

"Investors will remain bearish on the yuan, as they reprice in trade war risks," Ken Cheung, senior foreign-exchange strategist at Mizuho Bank. "The news was unexpected."

Flight to safety saw the dollar surge across the board, particularly against higher-yielding, higher-risk units, although the yen held its own against the greenback.

On oil markets, both main contracts were hammered by worries that a trade war between the world's top two economies could hit demand.

However, Stephen Innes at SPI Asset Management remained positive, calling Trump's tweet "political posturing". A deal was still likely, said Innes.

Raoul Leering, head of international trade analysis at ING, agreed, saying both sides had invested too much political capital in the talks to allow them to fail.

"We still expecte a US-China trade deal," he said.

- Key figures around 1345 GMT -

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New York - Dow: DOWN 1.6 percent at 26,090.37

London - FTSE 100 - Closed for holiday

Frankfurt - DAX 30: DOWN 1.7 percent at 12,205.48

Paris - CAC 40: DOWN 1.7 percent at 5,456.30

EURO STOXX 50: DOWN 1.6 percent at 3,446.68

Shanghai - Composite: DOWN 5.6 percent at 2,906.46 (close)

Hong Kong - Hang Seng: DOWN 2.9 percent at 29,209.82 (close)

Tokyo - Nikkei 225: Closed for holiday

Euro/dollar: DOWN at $1.1187 from $1.1202 at 2050 GMT on Friday

Pound/dollar: DOWN at $1.3088 from $1.3167

Dollar/yen: DOWN at 110.76 yen from 111.11 yen

Oil - West Texas Intermediate: DOWN 44 cents $61.50 per barrel

Oil - Brent Crude: DOWN 18 cents at $70.67 per barrel