Global stocks fell and government bonds rallied on Tuesday as US House of Representatives Speaker Nancy Pelosi’s expected visit to Taiwan raised the prospect of a forceful Chinese response.
Hong Kong’s benchmark Hang Seng index fell as much as 3.2 per cent on Tuesday, later trimming some of its losses. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped as much as 2.8 per cent. Taiwan’s Taiex and Japan’s Topix closed 1.6 per cent and 1.8 per cent lower respectively.
In Europe, the regional Stoxx 600 share index fell 0.6 per cent and London’s FTSE 100 traded flat, with analysts warning of sharper price moves in coming days if geopolitical tensions worsened.
“As market liquidity tends to dry up over the summer, any reactions will be amplified,” said Maarten Geerdink, head of European equities at NN Investment Partners.
Futures trading signalled Wall Street’s S&P 500 share index would fall 0.7 per cent in early New York trades on Tuesday, with contracts tracking the tech-heavy Nasdaq 100 index 0.8 per cent lower.
The moves came as Pelosi prepared to meet Taiwanese president Tsai Ing-wen and China ratcheted up its military activity around Taiwan, with the heightened US-China tensions raising the possibility of disruptions to global trade.
“There is speculation, among other things, that the Chinese may make a military mark and/or impose some form of economic sanctions,” Seyran Naib, a strategist at SEB, commented in a note to clients.
The yield on the 10-year US Treasury note dropped 0.06 percentage points to 2.55 per cent, near a four-month low, as the price of the benchmark debt instrument rose. The two-year Treasury yield traded at 2.85 per cent, forming a sharp inverted yield curve pattern, which has historically preceded recessions.
Germany’s 10-year Bund yield fell 0.06 percentage points to 0.71 per cent, also its lowest since early April.
“Geopolitics was already very much on people’s minds, given the Russia-Ukraine situation,” said Rosie Bullard, portfolio manager at James Hambro & Partners. “If we have more disruption to trade as a result of heightened tensions, markets will find that difficult and it could be a reason for another leg down in equities.”
The FTSE All-World index of global shares has fallen 15.6 per cent so far this year, dragged lower by Russia’s invasion of Ukraine and a surge in inflation driven by sanctions and trade disruptions that have propelled central banks to raise interest rates.
Japan’s yen climbed as much as 0.9 per cent to ¥130.39 against the dollar, its highest level in two months, reflecting haven buying.
More risk-sensitive currencies fell, with sterling 0.5 per cent lower at just under $1.22 and the Australian dollar down 1.4 per cent to near 69 US cents.
Brent crude, the international oil benchmark, fell 0.9 per cent to $99.14 a barrel, having not closed below $100 since mid-July.
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