How have stocks performed amid new tariff tension – ASX: BHP and ASX: RIO?


Global stocks took a back seat as additional tariffs on a further $US200 billion worth of Chinese goods were stated to be levied on the trade terms by the US igniting more tension. There could be significant pain for several companies and this could negatively impact supply chains across Asia especially in South Korea, Japan and Taiwan. However, initial reports pointed to the fact that tariffs may be more broad-based. Moreover, as the Chinese economy continues to rebalance towards domestic consumption and post growth rates above 6.0%, exporters might be able to redirect some of the lost export orders towards the domestic market, reducing the negative impact.

The tariffs announced by the US may be insufficient to start a trade war between China and the US per se as the cost might be manageable for the former. That said, a trade war is still a risk as a result of potential miscalculations from either China or the US. In fact, while indicating for the additional tariffs, Trump flagged to take more actions to have China change its unfair practices and work towards a balanced trade relationship.

A run-through of this week showed that equities more or less tumbled across the world amid the trade tensions, out of which most impact was seen in Asia whereas emerging market currencies and commodity prices came under pressure, lifted the swiss franc, yen and government bonds. Import tariffs are also likely to fuel inflation, as the US economy is already at full capacity, while further rate hikes are expected by the Fed over FY18 and FY19. Post the announcement on additional tariff, the S&P 500 ended 0.2 percent lower at 2,767 in New York, whereas the Dow Jones Industrial Average was 0.2 percent lower and again slipping into the negative territory for the year. The tech-heavy Nasdaq Composite shed 0.7 percent around June 20, 2018. The S&P/ASX 200 index was down by 2 points and reached at 6102.1 while All Ordinaries were down by 3.9 points and reached at 6208.9. As at June 20, 2018, Cboe Vix volatility briefly rose above 14 to its highest level. Euro Stoxx 600 index on the other hand ended 0.7 percent lower to end at 383.21 around June 19, 2018; and in London, the FTSE 100 fell by 0.4 percent. Coming to Asia, the Shanghai composite fell 3.8 percent, and the CSI 300 was down 3.5 percent. In Hong Kong, the Hang Sheng Index fell by 2.8 percent. Commodities including Brent Crude and LME Copper were all seen to witness a setback with Gold also easing to $1,269 by mid-week. The Shenzhen index went down about 5.8% as at June 19, 2018 with the additional threat from tariffs. Meanwhile, the Dow Jones Industrial Average lost all the gains it made in 2018. With this, there might be a reduced demand for precious metals and industrial products.

Australian market closed at a lower note mid-week with mining stocks witnessing a challenging time. Particularly, Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) fell at the back of losses at US listings. Towards the end of the week, the ASX has been trying to defy the downbeat trend, but ASX: BHP was still witnessing a losing streak by stock edging down to $ 32.74 around opening of trade. The stock has been down 2.38% in last five days. Same was the case with ASX: RIO, which lost 3% over the last five days. It would be key to watch that how these miners perform given the latest circumstances and any future developments.


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