London: Global stocks fell for a sixth day on Monday as an escalation of trade tensions between the United States and China spooked markets and the yuan fell to its lowest levels in over a decade.
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Safe-haven assets including the Japanese yen, core government bonds and gold rallied.
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European shares fell to two-month lows, with the pan-European STOXX 600 index shedding 2 per cent on top of the 2.5 per cent it lost on Friday — its worst day so far in 2019 — after US President Donald Trump signalled another round of tariffs on Chinese imports.
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“Markets had not been expecting the latest US-China trade talks to conclude with any significant breakthrough last week, but very few expected President Trump to slap 10 per cent tariffs on $300 billion (Dh1.1 trillion) worth of Chinese goods,” said Hussein Sayed, chief market strategist at FXTM.
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MSCI’s All Country World Index, which tracks shares in 47 countries, was down 0.7 per cent on the day. That put it down almost 2 per cent including Friday’s loss.
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19.02%
is the VIX volatility index or th Wall Street’s “fear gauge”###
Asian shares suffered their steepest daily drop in 10 months, with MSCI’s broadest index of Asia-Pacific shares outside Japan sinking 2.5 per cent to depths not seen since late January.
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The VIX volatility index — also known as Wall Street’s “fear gauge” — rose to 19.02 per cent, its highest since May 13, while Europe’s equivalent hit its highest since early January.
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S&P 500 futures were 1.35 per cent lower.
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“We reiterate our view to scale back equity positions to strategic allocations after strong gains year to date, amid the ongoing trade-related uncertainties,” Credit Suisse analysts wrote in a note to clients.
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The biggest mover in currencies was the yuan, which fell past the key level of 7 to the dollar as Chinese authorities — expected to defend the currency at that level — allowed it to break through to its lowest in the onshore market since the 2008 global financial crisis.
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In offshore markets, the yuan fell to its weakest since international trading of the Chinese currency began.
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Headed for its biggest one-day drop in four years, it was last down 1.4 per cent at 7.0744 in offshore markets.
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“Over the past couple of years, China has kept the renminbi stable against the basket, but with the renminbi TWI (trade-weighted index) now testing the lower end of the range in play since 2017, investors may turn nervous, introducing another dose of volatility,” Morgan Stanley strategists wrote in a note to clients.
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The currencies of other Asian economies closely linked with China’s growth prospects also dropped.
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The Korean won fell 1.4 per cent against the dollar, on course for its biggest one-day loss since August 2016. The new Taiwan dollar fell more than 0.7 per cent.
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Bid for safety
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Japan’s yen, which investors tend to buy in times of risk aversion, rose 0.7 per cent to its highest since a January flash crash.
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Dutch 30-year government bond yields turned negative for the first time as Eurozone yields sank further amid concerns about US-China trade and a no-deal Brexit.
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US 10-year yields dived 7 basis points to 1.77 per cent, while Germany’s 10-year bund yields fell to -0.53 per cent. The three-month to 10-year US yield curve was at its most inverted in 11 years.
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The Swiss franc was also boosted by safe-haven demand. Trump is also eyeing tariffs on the European Union, but has yet to make a formal announcement. The euro was 0.3 per cent higher to the dollar at $1.1137.
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Sterling hovered near 2017 lows at $1.2117, pressured by concerns about Britain exiting the EU without a trade deal in place.
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Oil extended losses with US crude down 1.55 per cent at $54.8 and Brent down 1.55 per cent at $60.92.
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Gold prices jumped more than 1 per cent to their highest in more than six years, with spot gold prices up 1.1 per cent to $1,456.51 per ounce.
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