Stock markets shrug off opening salvos in trade war

The EU's tariffs on bourbon, jeans and Harley Davidson motorbikes have kicked in

London (AFP) – World stock market rose Friday, seemingly unworried by a global trade war that got underway when Brussels slapped retaliatory tariffs on the United States.

Oil prices continued to rise after the Organization of the Petroleum Exporting Countries said its members agreed on an output increase of one million barrels per day that Saudi Arabia had put forward at a key meeting in Vienna.

European stocks were all solidly higher and Wall Street also got off to a stronger start as markets sought to claw back some of the week’s losses seen on trade war fears.

“US stocks are higher in early action, looking to pare a weekly loss that has come courtesy of escalated global trade tensions, monetary policy uncertainty and European political turmoil,” analysts at the Charles Schwab brokerage said.

As European Union tariffs on key US goods — including jeans, bourbon and motorcycles — came into effect, there were fears China and the US will carry through with their own threats, locking the world’s three biggest economies in a potentially destructive face-off.

The EU move was in retaliation to US President Donald Trump’s decision to hit steel and aluminium imports from the bloc, as part of his “America First” protectionist policy that seeks to close big trade gaps with major world powers.

Washington and Beijing have meanwhile traded tit-for-tat threats on hundreds of billions of dollars worth of goods.

– ‘Things about to get worse’ –

“The underlying tensions between the US and China continue to escalate, and while neither wants a trade war, the US won’t accept the status quo, and China won’t change its industrial policy,” Rabobank senior strategist Michael Every told AFP.

“Hence things are about to get worse, in all probability,” he added, warning that markets had not priced in this possibility.

“Western markets are supposed to price for those kind of things, but it seems they are increasingly doing a bad job of doing so — then intermittently remember how to.”

World stock markets have endured a rollercoaster ride this week, as investors fretted over the deteriorating situation.

There are worries a full-blown flare up could pummel the global economy just as it is getting back on its feet after the financial crisis.

“The US-EU trade dispute, when viewed alongside the US-China trade tensions, means that we are edging closer to a full-blown global trade war,” said John Ferguson, head of global forecasting at the Economist Intelligence Unit.

“The concern here is how Mr Trump responds — he may look to enact further tariffs or even subsidise US farmers who are likely to feel the brunt of the tariffs from US trading partners.

“Both of these moves from Mr Trump would likely lead to a further response from the EU, and this is how a trade war breaks out.”

– Saudi wins at OPEC –

Asia ended a tumultuous week on a cautious note, after Wall Street finished in the red overnight following the ominous exchange of trade threats between the US and China.

“A global trade war has been our top risk to the global economy for many months. Recent events have only confirmed that view,” said Ferguson.

Oil, already strong early in the sessions, extended gains after OPEC members agreed on a combined increase in crude oil output of one million barrels per day, according to Saudi Arabia’s energy minister.

“I am pleased that at the end of the day we reconciled around the one million figure that we have been talking about,” said Khaled al-Faleh.

 – Key figures around 1345 GMT –  

London – FTSE 100: UP 1.3 percent at 7,653.90 points 

Frankfurt – DAX 30: UP 0.1 percent at 12,525.68

Paris – CAC 40: UP 0.9 percent at 5,363.65

EURO STOXX 50: UP 0.6 percent at 3,425.21

New York – Dow Jones: UP 0.5 percent at 24,491.21

Tokyo – Nikkei 225: DOWN 0.8 percent at 22,516.83 (close)

Hong Kong – Hang Seng: UP 0.2 percent at 29,338.70 (close)

Shanghai – Composite: UP 0.5 percent at 2,889.76 (close)

Euro/dollar: UP at $1.1652 from $1.1604 at 2100 GMT

Pound/dollar: UP at $1.3288 from $1.3240

Dollar/yen: UP at 110.04 yen from 109.99 yen

Oil – Brent Crude: UP $1.69 at $74.74 per barrel

Oil – West Texas Intermediate: UP $1.86 at $67.40