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Oil: Global shares, oil drop after Trump tariff threat

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Equity markets, which have been largely expecting the two sides to reach a trade agreement soon, fell sharply as further talks to end their bruising trade war were thrown into doubt.

The trade war has resulted in billions of dollars of losses for both sides, while inflicting collateral damage on export-reliant economies and companies from Japan to Germany.

Chinese shares plunged more than 6 percent, while U.S. stock market futures fell 1.6 percent. Oil prices sank and the Chinese yuan weakened sharply.[.N]

The rout is set to continue in Europe. Financial spreadbetters expect Frankfurt’s DAX to open 1.7 percent lower at 12,207, and Paris’ CAC to open down 1.6 percent at 5,462. London is closed for a bank holiday.

Trump sharply escalated tensions between the world’s two largest economies with tweeted comments on Sunday that trade talks with China were proceeding “too slowly”, and that he would raise tariffs on $200 billion of Chinese goods to 25 percent on Friday from 10 percent.

He also said he would target a further $325 billion of Chinese goods with 25 percent tariffs “shortly”.

The tweets upended the previously calm market mood that had benefited from signs of improving economic growth in China and the United States, and from comments from Trump and other senior U.S. officials that trade talks were going well.

The Wall Street Journal reported on Monday that China was considering cancelling trade talks scheduled for this week following Trump’s threats. Conflicting later reports on Chinese Vice Premier Liu He’s travel plans added to market confusion.

“I think this has got the potential to be a real game-changer,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

“There is still a question of whether this is one of the famous Trump negotiation tactics, or are we really going to see some drastic increase in tariffs. If it’s the latter, we’ll see massive downside pressure across all markets,” he said.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.9 percent in afternoon trade as markets across the region fell deep into the red.

Chinese blue-chips were down more than 6 percent, having closed higher before a three-day national holiday amid expectations that pressures on China’s economy were easing.

The drop in Chinese shares came despite a move on Monday by China’s central bank to cut reserve requirements for small banks to help boost lending to small and private firms.

Australian shares were off 0.8 percent.

Japanese financial markets remain closed until Tuesday for a national holiday, but Nikkei 225 futures were down 1.9 percent at 22,075, off the day’s lows.

E-Mini futures for the S&P 500 slid 1.6 percent, erasing memories of gains on Friday after the U.S. payroll data had helped to lift Wall Street, and signaling a rough open for U.S. stocks on Monday.

“The risk for (Trump) is that the Chinese don’t play ball and don’t go ahead with the negotiation,” said Shane Oliver, head of investment strategy at AMP in Sydney.

“It’s not in his interest for shares to go down as it would hit U.S. business confidence and investment, and that would shoot up unemployment. And that would be a risk for his re-election, too,” he said.

But economists at Citi painted a brighter picture of the outlook for Chinese markets following the recent stabilization of the Chinese economy.

“Should trade tensions resume, we expect a speedy reaction by China’s policy-makers, with policy implementation made more effective. Given the scope for fiscal and monetary stimulus is large in the near term, we believe the negative impact from additional tariffs will likely be managed better this time,” they said in a note.

 

MORE EASING ON THE WAY?

The flight from riskier assets boosted interest in safe havens, pushing U.S. Treasury futures up 16 ticks. Data from CME Group showed the market now sees a nearly 56 percent chance of a Federal Reserve rate cut by the end of the year.

Chinese 10-year treasury futures also jumped, with the most-traded contract, for June delivery rising as much as 0.5 percent. They were last up 0.27 percent at 96.855.

“The intensified trade and geopolitical risks are likely to prompt the regional central banks for more stimulatory policies,” analysts at ING said in a note. “We expect the majority of Asian central banks meeting this week to cut their policy rates.”

As investors flocked to the safe-haven yen, the dollar dropped 0.3 percent against the Japanese currency to 110.78.

But China’s yuan plunged, with the offshore unit weakening to 6.8215 per dollar, its weakest level since January 10, before paring some losses.

The onshore yuan weakened nearly 1 percent to 6.7980 per dollar before bouncing back to 6.7805.

In contrast to the sharp moves in Asian currencies, the euro was down less than 0.1 percent on the day at $1.1193, and the dollar index, which tracks the greenback against a basket of six major rivals, was up 0.06 percent at 97.579.

In commodity markets, Trump’s tweets sparked a plunge in oil prices. U.S. crude at one point dropped as much as 3.1 percent to a more-than-five-week low, before bouncing to $60.51 per barrel – still off 2.3 percent on the day.

Brent crude was 2.2 percent lower at $69.28 per barrel.

The tweets have compounded pressure on prices amid signs of a rise in U.S. output, which has surged by more than 2 million barrels per day since early 2018.

Spot gold jumped 0.25 percent to trade at $1,282.20 per ounce.

 

 


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24 Hours Across Africa

Elizabeth Warren, targets prospective plan to stop ‘looting’ of U.S. companies

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U.S. Democratic presidential hopeful Elizabeth Warren on Thursday called for an overhaul of the private-equity industry as part of a new proposal targeting Wall Street.

“We need to shut down the Wall Street giveaways and rein in the financial industry so it stops sucking money out of the rest of the economy,” Warren said in a post on Medium.com announcing her proposal.

Warren and a group of Democrats also filed legislation on Thursday to implement the policy that the Massachusetts senator proposed through her campaign.

Warren, a relentless critic of the financial industry for much of her career, is one of more than two dozen candidates vying for the Democratic nomination to challenge Republican President Donald Trump in the November 2020 election.

She has distinguished herself in the crowded field by releasing reams of policy proposals.

The legislation, titled the Stop Wall Street Looting Act was filed in both the U.S. House of Representatives and Senate.

Senator Kirsten Gillibrand, who also is running for president, is a co-sponsor with Warren but no Republicans joined in sponsoring the bill.

The proposal was greeted with opposition from industry and business groups, who would undoubtedly fight efforts to enact the legislation.

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24 Hours Across Africa

EU to probe Amazon over use of merchant data

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Amazon became the target of an antitrust investigation by the European Union on Wednesday over its use of merchants’ data, underlining the increasing regulatory scrutiny about how tech companies exploit customers’ information.

The European Commission has been seeking feedback from retailers and manufacturers since September into Amazon’s dual role as a marketplace for merchants and acting as a competitor following complaints from traders about Amazon’s practices.

The Commission said its investigation would focus on Amazon’s standard agreements with marketplace sellers and its use of data in choosing winners of the “buy box”, which allows consumers to add items from a specific retailer directly to their shopping carts.

European Competition Commissioner Margrethe Vestager, who can fine companies up to 10% of their global turnover, said the issue was crucial as more and more Europeans shop online.

“E-commerce has boosted retail competition and brought more choice and better prices. We need to ensure that large online platforms don’t eliminate these benefits through anti-competitive behavior,” she said.

Amazon said it would cooperate fully with the EU investigation. The company reached a deal with Germany’s antitrust authority on Wednesday to overhaul its terms of service for third-party merchants.

Under its terms of service for Europe here set out on its website, merchants grant Amazon “royalty-free” rights to use in a range of ways their materials, such as technology, trademarks, content and product information.

“There have been concerns around the world that competition authorities have failed to appreciate the market power that comes from ownership of data,” he said.

In Amazon’s case, he said the Commission needed to show “the standard agreements with retailers were anti-competitive in somehow allowing Amazon to use the data to manipulate market outcomes, or that Amazon had in some way abused its dominance.”

The Commission had been struggling to define the market in which Amazon operates in order to identify where the competitive harm could have been, sources said.

This would not be Amazon’s first run-in with the Commission. Two years ago, it was told to pay back taxes of about 250 million euros ($280 million) to Luxembourg because of illegal tax benefits. That same year it settled with the regulator over its distribution deals with e-book publishers in Europe.

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