Trade Worries Send US Equities Lower; Gold Up

Dubai: US equities recovered after a lower opening on Monday even as rest of the European and UK markets were shut for Easter holiday. But analysts warned that the growing chances of a trade war between the world’s two biggest economies may weigh going forward.

China, the world’s second largest economy, retaliated by imposing up to 25 per cent on $3 billion in food imports from the US, which earlier imposed 25 per cent import tax on steel and 15 per cent tax on aluminium shipments.

The US president has also promised to levy 25 per cent on $60 billion in annual imports from China, reviving fears of a trade war.

We remain watchful for further escalation and assign a 20—30 per cent probability to damaging retaliation. However, we remain pro-risk.”

 - Mark Haefele | Global CIO, UBS

The Dow Jones Industrial Average was 0.84 per cent lower to 23,981.14 one hour after trading. The Dow Jones index closed the first quarter on a weak note, ending 3 per cent lower, snapping its nine-quarter win streak, the longest in 20 years.

“We remain watchful for further escalation and assign a 20—30 per cent probability to damaging retaliation. In the risk case, diversification and our counter-cyclical positions should help protect portfolio returns. However, we remain pro-risk and, given favourable earnings and attractive valuations, we prefer Chinese equities within our Asia portfolio,” said Mark Haefele, global chief investment officer at UBS.

The Dow index, which struck a record high of 26,600 in late January, witnessed record volatility amid fears that faster than expected rise in inflation could trigger higher rates.

Earlier in Asian trading hours, India’s Sensex index closed 0.87 per cent higher to 33,255.36, while Indonesia’s Jakarta’s composite index 0.83 per cent higher to 6,240.571. Chinese Shanghai composite was down 0.18 per cent lower to 3,163.179.

“Asian equities kicked off the second quarter on a positive note, taking their cue from Wall Street’s rally on Thursday. The gains came despite China imposing retaliatory tariffs. Trade dispute will continue to dominate investors’ decisions heading into the second quarter,“ said Hussain Sayed, Chief Market Strategist at FXTM.

Gold prices continued to shine after a strong first quarter to March amid fears of a retaliatory action from the US.

“I’m still bullish on gold due to geopolitical uncertainty. For me, to be completely confident we need to close above $1,350. My year-end target is $1,450,” said Naeem Aslam, chief market analyst from Think Markets.

Gold in the international spot market was nearly 1 per cent higher to $1,335.76 an ounce, after gaining 14.8 per cent in the first quarter, registering its third straight quarterly rise.