NUSA DUA, Indonesia: International Monetary Fund Managing Director Christine Lagarde on Thursday warned countries of the perils of a trade or a currency war, saying they could be detrimental to global growth and hurt “innocent bystanders.”
Lagarde urged countries to “de-escalate” trade frictions and fix global trading rules, rather than abandon them.
“We certainly hope we don’t move in either direction of a trade war or a currency war. It will be detrimental on both accounts for all participants, Lagarde told a news conference during the annual meetings of the IMF and World Bank in Indonesian resort island of Bali.
“And there would also be lots of innocent bystanders.”
China and the United States have slapped tit-for-tat tariffs over the past few months, rattling financial markets as investors worried the escalating trade war could knock global trade and investment.
On recent yuan declines, Lagarde said they were mainly driven by the strength of the dollar, noting that it has not depreciated as much against a basket of currencies.
“We’re seeing more and more countries, China included, let their currencies fluctuate,” Lagarde said.
The yuan currency has faced strong selling pressure this year, losing over 8 percent between March and August at the height of market worries, though it has since pared losses as authorities stepped up support.
A US Treasury official on Monday repeated that the Trump administration was concerned about the yuan’s recent weakening as the department prepares a semi-annual report on currency manipulation due out next week.
US President Donald Trump has accused China of deliberately manipulating its currency to gain a trade advantage, claims Beijing consistently rejected.
“We have supported the move of China toward (currency) flexibility,” she said, adding that the IMF has encouraged Chinese authorities to “go down that path.”
Lagarde urged China to follow through on the IMF’s recommendation to continue moving toward a system that allows the yuan to move flexibly.
She declined to comment on the recent market rout, but said US equities and overall stock prices “in general have been extremely high.”
IMF’s Lagarde warns trade, currency wars could be detrimental for growth
IMF’s Lagarde warns trade, currency wars could be detrimental for growth
- Christine Lagarde urged countries to ‘de-escalate’ trade frictions and fix global trading rule
- China and the United States have slapped tit-for-tat tariffs over the past few months
Global Markets: Record selloff in Seoul leads stock rout as markets brace for energy shock
- S. Korea head for heaviest selloff on record
- US and European equity futures slip
SINGAPORE: Asian stocks tanked on Wednesday,with a record-breaking market crash in Seoul, as investors dumped crowded bets on chipmakers on worries a widening Middle East war will drive an oil shock that raises inflation and delays interest rate cuts.
Asia is heavily dependent on energy imports shipped through the near-shuttered Strait of Hormuz and nowhere was the strain clearer than in Seoul, where the session finished with the market plunging 12 percent, the largest drop on record.
Over two days the benchmark has lost more than 18 percent of its value while the currency has slumped to a 17-year low.
Japan’s Nikkei fell 3.9 percent and Taiwan stocks dropped 4.3 percent as investors raced out of what has been one of the hottest bets of the last few months in semiconductor makers — likely as cover for losses elsewhere and to cut down on risks.
“Asia’s selloff is turning disorderly because markets are no longer treating this as a ‘one-week headline shock,’ said Charu Chanana, chief investment strategist at Saxo in Singapore.
“The ‘sell-what-you-can’ phase is spreading.”
S&P 500 futures wobbled 0.6 percent lower and European futures gave up an early bounce to trade flat.
Goldman Sachs CEO David Solomon said he’d been surprised at markets’ “benign” reaction up to now to the building risks.
“There’s a cumulative effect of everything that’s happening and a much harsher reaction. Up to this point, we haven’t seen that cumulative effect,” he said in a speech in Sydney.
“I think it’s gonna take a couple of weeks for markets to really digest the implications of what has happened both in the short term and medium term, and I can’t speculate as to how that would play out,” he said.
Rate cuts in question
Benchmark Brent crude oil futures were on the rise and up more than 13 percent for the week at $82.08 a barrel, though prices have come off highs since US President Donald Trump ordered an insurance guarantee on Gulf shipping and said the navy may escort oil tankers through the Strait of Hormuz.
US and Israeli forces have pounded Iran since Saturday and Iranian drones and missiles have struck Gulf oil refineries and also US embassies in Saudi Arabia and Kuwait.
“Oil infrastructure seems to be under attack ... so people are having to think about what is the duration of all of that,” said Damien Boey, portfolio strategist at Wilson Asset Management in Sydney.
Bond markets, after an initial rally, are now under pressure as investors bet higher oil prices will stoke inflation and delay rate cuts. Traders now see the Federal Reserve as more likely than not to hold rates in June.
“For the United States, this is very clearly inflationary ... so the market’s reassessing whether the Fed can actually deliver any rate cuts at all this year,” said Andrew Lilley, chief rates strategist for Australian investment bank Barrenjoey.
Dash for cash
That’s left cash as the beneficiary, with flow rushing in to money-market funds from riskier bets. Even gold took a hit overnight, along with the Australian dollar, which was still under pressure as investors close winning trades.
Gold steadied at $5,163 per ounce in Asia, while the Aussie dipped just below 70 cents. Overnight on Wall Street, indexes pared heavier losses and the S&P 500 closed 0.8 percent lower.
The euro was pinned at $1.16 by higher energy costs. Benchmark European gas prices have jumped about 66 percent in two days.
Coal prices are also starting to move in response to the energy crunch, with Australia’s benchmark Newcastle price up almost 17 percent this week.
“For markets to find a floor, we need signs of de-escalation on the war front or status quo, which could then move the focus back to fundamentals,” said Rupal Agarwal, Asia quant strategist at Bernstein in Singapore.
