Trade fears hurt Asia stocks, Brexit concerns pressure pound

British pound remains under pressure as the possibility of another UK general election increases.

    The US began imposing 15-percent tariffs on a variety of Chinese goods on Sunday and China responded with new duties on US crude oil, escalating their trade war and hurting investor sentiment globally [File: Andy Wong/AP]
    The US began imposing 15-percent tariffs on a variety of Chinese goods on Sunday and China responded with new duties on US crude oil, escalating their trade war and hurting investor sentiment globally [File: Andy Wong/AP]

    Global stocks were hit by trade frictions between the United States and China on Tuesday while the British pound flirted with two-and-a-half-year lows as Prime Minister Boris Johnson indicated he could call an election to stymie legislators' efforts to avert a no-deal Brexit.

    MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.3 percent in early trade while Japan's Nikkei rose 0.1 percent.

    China's mainland shares were fractionally lower while Hong Kong's benchmark edged up 0.1 percent.

    The US began imposing 15-percent tariffs on a variety of Chinese goods on Sunday and China responded with new duties on US crude oil, the latest escalation in their trade war.

    Although US President Donald Trump has said both sides would still meet for talks later this month, tensions have shown little sign of abating.

    China said on Monday it has lodged a complaint against Washington at the World Trade Organization over US import duties, trashing the latest tariff actions as violating the consensus reached by leaders of China and the US in a meeting in Osaka.

    "We have so many problems around the world, starting from the US-China trade war and Brexit. But investors appear to be getting used to be exposed to them," said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management

    "No one really thinks Washington and Beijing will solve the issues. But as long as the US economy keeps going, stock prices will have limited downside," he said.

    US manufacturing survey by the Institute for Supply Management (ISM) due at 1400 GMT Tuesday is a major focus for investors.

    Although US manufacturing activity has been slowing in recent months, the ISM's index has so far stayed above 50, indicating the industry is still in growth mode.

    US bond yields rose slightly on profit-taking after a market holiday in the US on Monday.

    In the currency market, sterling dipped 0.25 percent to $1.2030 after having dropped 0.85 percent on Monday. The currency stood just above its two-and-a-half-year low of $1.2015, which it hit on August 12.

    Prime Minister Johnson implicitly warned MPs on Monday that he would seek an election if they tied his hands on Brexit, ruling out a further delay to Britain's departure from the European Union and angering members of his own party.

    "Depending on further developments in UK politics, the pound could see sharp moves in the coming week or two. We think it could fall to as low as $1.13 this month," said Sumino Kamei, senior currency strategist at MUFG Bank.

    Uncertainties over Brexit have already hit the UK economy, with a survey by the IHS Markit/CIPS showing British manufacturing contracted last month at the fastest rate in seven years.

    The picture is not much better in Europe and the European Central Bank is widely expected to cut interest rates next week to cushion the blow, pressuring the euro.

    The euro fell to a two-year low of $1.09555 in early Tuesday trade.

    The offshore Chinese yuan also dropped to a record low of 7.1975 per dollar while the Australian dollar fetched $0.67145, not far from a decade-low of $0.66775 hit last month.

    Meanwhile, Argentina's bond prices fell to record lows on Monday and the official and black-market pesos diverged after the country imposed capital controls in a bid to stem a currency rout that is sharpening the risk of default.

    The peso closed 0.88 percent stronger in official markets but closed 0.79 percent weaker in the black market at 63.5 per dollar.

    Oil prices were also dented by concerns over the trade war. US West Texas Intermediate (WTI) crude lost 0.31 percent to $54.93 per barrel. 

    SOURCE: Reuters news agency