Asia markets traded lower Tuesday morning as the U.S.-China trade war intensified, after Beijing confirmed it is suspending agricultural product purchases in response to new American tariffs.
President Donald Trump said last week the U.S. is putting 10% tariffs on another $300 billion worth of Chinese goods starting Sept. 1.
Shares in mainland China slipped in early trade: the Shanghai composite shed 1.63%, while the Shenzhen component fell 1.97% and the Shenzhen composite declined 2.037%. In Hong Kong, the Hang Seng index dropped 2.19%.
Japan’s Nikkei 225 plunged 1.76% in morning trade, while the Topix index also fell 1.68%.
South Korea’s Kospi dropped 1.34%. Over in Australia, the S&P/ASX 200 slipped 2.3%.
The MSCI Asia ex-Japan index declined 1.75%.
The Tuesday session in Asia followed overnight declines on Wall Street, where the Dow Jones Industrial Average plunged more than 700 points, the S&P 500 dropped nearly 3% and the Nasdaq Composite fell 3.5%. It was the worst percentage drop for all three indexes this year.
Chinese response
The Chinese Ministry of Commerce said Chinese companies have stopped purchasing American agricultural products in response to Trump’s latest salvo and added it would “not rule out” tariffs on newly purchased agricultural goods after Aug. 3. For its part, China is one of the largest buyers of U.S. agriculture.
In a closely-watched move, the People’s Bank of China set the midpoint for the yuan at 6.9683 per dollar, against the onshore currency’s last close at 7.0498.
The Chinese central bank sets a daily rate for the currency, allowing it to trade in a band against the greenback within 2% of the midpoint value, also known as the onshore yuan. Its offshore counterpart is used by foreign investors and banks.
The onshore yuan last traded at 7.0566 against the dollar, while the offshore yuan was last at 7.1033 against the greenback.
US Treasury labels China currency manipulator
On Monday, the onshore Chinese currency weakened past the psychologically important 7-yuan-per-dollar threshold for the first time since 2008. Following that, the U.S. Treasury Department designated China as currency manipulator — a move that no White House had exercised since the Clinton administration.
Still, analysts said there was questionable legitimacy regarding the U.S. Treasury’s claims.
“On the face of it, this does not have strong grounds,” Michael Hirson, practice head for China and Northeast Asia at Eurasia Group, told CNBC on Tuesday.
“Regardless of how you look at it, the simple truth is China has been intervening mostly to prevent the currency weakening, not to prevent it from strengthening,” Hirson said.
“Politics once again gets in the way of objective analysis,” Stephen Roach, senior fellow at Yale University, told CNBC’s “Squawk Box” on Tuesday.
Currencies
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.325 after declining from levels around 98.0 yesterday.
The Japanese yen, widely viewed as a safe-haven currency, traded at 106.22 after seeing an earlier high of 105.51. The Australian dollar changed hands at $0.6780 after touching an earlier low of $0.6781.
Elsewhere, shares of Apple suppliers will also be in focus, with the Cupertino-based tech giant seeing its stock drop 5.2% on Monday amid the trade turmoil.
U.S. futures on Monday evening also pointed to further declines for stocks on Wall Street when they open later Tuesday, with the Dow implied to open lower by almost 300 points.
Asia-Pacific Market Indexes Chart
Here is a look at some of the data ahead:
- Australia: Reserve Bank of Australia interest rate decision at 12:30 p.m. HK/SIN
— CNBC’s Patti Domm and Fred Imbert contributed to this report.
