Asia stocks sunk by new Trump trade salvo

Asian shares have extended a month-long slide and sovereign bonds have surged after US President Donald Trump ramped up trade tensions by slapping tariffs on all goods from Mexico, sending the peso tumbling.

Washington will impose a five per cent tariff from June 10, which would then rise steadily to 25 per cent until illegal immigration was halted.

Trump announced the decision late Thursday, catching markets completely by surprise and sparking a rush to safe harbours as investors worried the escalation would upend a fragile world economy.

“The threat of US tariffs on Mexico to take effect inside two weeks is a sharp blow to investor sentiment,” Sean Callow, a senior FX analyst at Westpac, said.

Yields on the 10-year Treasury note quickly fell to a fresh 20-month low of 2.18 per cent, while the dollar jumped 2.1 per cent on the Mexican peso.

E-Mini futures for the S&P 500 sank 0.9 per cent, leading Asian bourses lower.

Japan’s Nikkei fell 1.2 per cent in early trade, down seven per cent for the month so far. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1 per cent and was likewise off 7.7 for the month.

Investors feared opening a new front in the trade wars would threaten global and US growth and pressure central banks to consider new stimulus.

On Thursday, Federal Reserve Board of Governors Vice Chair Richard Clarida said the central bank would act if inflation stays too low or global and financial risks endanger the economic outlook.

The case that the inflation slowdown was temporary took a hard blow when the core personal consumption expenditures (PCE) index, the Fed’s favoured measure of inflation, was revised down to one per cent for the first quarter.

Bonds extended their bull run, with 10-year Treasury yields now down a steep 31 basis points for the month and decisively below the overnight funds rate.

Yet Treasuries are hardly alone in rallying, with bond yields across Europe either at or near record lows. Yields in Australia and New Zealand also hit an all-time trough on expectations of rate cuts there.

Those declines have kept the US dollar relatively attractive from a yield point of view, trading near a two-year high against a basket of currencies at 98.147.

The euro was huddled at $US1.1130, but the safe haven yen has been faring better and was holding a small monthly gain on the dollar at 109.33.

The pound was last at $US1.2609, a 3.2 per cent loss for the month so far as Theresa May prepares to depart the UK prime ministership.

In commodity markets, spot gold edged up a touch to $US1,290.65 ($A1,866.54) per ounce, while oil prices were at their lowest in over two months.


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