World stocks hovered near four-week lows after Washington moved to impose new tariffs on European goods, fuelling fears about global growth and dousing risk appetite.
MSCI’s index of world stocks slipped 0.1 per cent, with Asian shares plunging. Japan’s Nikkei stock index closing down two per cent, its biggest one-day decline since August 26.
However, European stocks eked out small gains after suffering their worst day since last December on Wednesday, when the US got the go-ahead to impose tariffs on $US7.5 billion of European goods.
Washington will enact 10 per cent tariffs on Airbus planes and 25 per cent duties on French wine, Scotch and Irish whiskies and cheese from across the continent as punishment for illegal EU subsidies to Airbus.
But a reduction in the initial list propped up some sectors with the pan-regional STOXX 600 index up 0.2 per cent, torn between falls in financials and gains in luxury goods stocks. France’s CAC index rose 0.7 per cent while Britain’s FTSE 100 fell 0.5 per cent. German bourses – a weather vane for exports – were closed for a national holiday.
The latest US-European trade tensions added to fears over the standoff between Washington and Beijing, which has cast a shadow over global growth prospects. Earlier in the week, disappointing data on US manufacturing and the jobs market suggested the trade war with China had damaged the world’s largest economy.
“The big question for a lot of folks is whether this is the third slowdown since the financial crisis or are we now heading for a global recession,” said Anujeet Sareen, a fixed income portfolio manager and global macro strategist for Brandywine Global. “The wild card in the pack is always Donald Trump and whatever he tweets next.”
US stock futures indicated 0.4 per cent higher, after shares fell the most in nearly six weeks on Wednesday. All three major New York share indexes lost more than 1.5 per cent.
“The outperformance of the US economy compared to other major economies has held the dollar and other risky assets up but that has changed this week,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.
Bets on a rate cut could rise further if a US non-farm payrolls report on Friday shows weakness in the labour market.
In currency markets, the US dollar dipped to one-week lows against the euro and yen. The greenback crossed 107 Japanese yen and touched a week low of 106.95 yen before recovering some ground. It fell to $US1.0973 per euro.
Meanwhile, sterling was flat at $US1.2306 as investors waited for a European Union response to Britain’s latest Brexit offer, which Prime Minister Boris Johnson offered on Wednesday.
So far, the last-ditch Brexit proposal has received a cool reception. One senior EU official said it “can’t fly” because it was an unworkable move backwards that left Britain and the EU far apart.