Stocks were pulverised and industrial commodities sank on the announcement of US tariff barriers aimed at China. China’s response was swift and uncharacteristically blunt, and investors rushed for safety, driving bonds and gold higher. While the sanctions may later prove a negotiating tactic the impact on Asia Pacific markets today will be dramatic.

Analysts are still working through the form of the tariffs, and exploring possible escalations. The 15 day delay in implementation and a 30 day comment period mean there is an opportunity for dialogue and a negotiated solution. A key question for markets is whether trade barriers are aimed only at China or if this is the first salvo in an as yet undeclared trade war.

Futures markets in major Asia Pacific markets are treading water 2-3% down on yesterday’s close. Fear that a trade war will choke global growth saw copper, nickel and crude oil pounded on London and Chicago exchanges overnight. Every base metal finished in the red. This resource focus may mean the Australia 200 index is most vulnerable today. A read on US manufacturing showed surprising strength but was overwhelmed by the White House announcement.

The US Volatility Index spiked in response to the news. However at 23.3% it is well below the February peak above 50%. Moves and countermoves from Beijing and Washington will likely drive markets, at least in the short term.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.