Amid a global stock market slump following fears of a full blown trade war, especially after Trump administration’s move to impose tariffs on up to $60 billion of Chinese imports, Chris Wood of CLSA says that the stringent measures could cause more waves in the financial markets. Interestingly, following the announcement, the US stock markets tumbled 724.42 points, or 2.93 percent, to 23,957.89, the S&P 500, registering its single day decline in six long weeks. Back home, the domestic stock markets put up a knee-jerk reaction in the on Friday morning, with the Sensex crashing 355 points at open below the 33,000 mark and the broader Nifty slipping below the psychological 10,000 level. Notably, the Indian stock markets as measured by the two indices have plunged to 4 month lows.
A vicious sell-off was also observed in major Asian stock markets since early morning today, with Japan’s Nikkei down 225 points, or 3.5% at 20,827.92, South Korea’s Kospi tumbled 2.3% to 2,438.03, Hong Kong’s Hang Seng lost 3.2% to 30,090.32 and China’s Shanghai Composite sank 2.7% to 3,169.19 while Australia’s S&P/ASX 200 skidded 1.9% to 5,824.50.
According to Chris Wood, the most likely outcome of this trade war is that China may compromise, preventing from its escalation into a full blown trade war. Wood says that Beijing will remain very unlikely to play hard ball in terms of threatening to sell US treasury bonds and the like. Further, Trump will also probably be satisfied if he shows that he has managed a better deal against China.
Amid a knee jerk reaction across global markets as investors enter into a panic mode, David Hensley of JP Morgan says that steps taken by Trump administration still appear to imply relatively minor macroeconomic consequences absent a significant further escalation. However, the expert noted that if Trump follows up with more aggressive measures, then those incremental steps will have repercussions. In his interview to CNBC TV18, David Hensley said that the current step of levying tariffs on imports represents 10% of total imports will have minor consequence.