US stock futures and oil slide as trade wars fuel worries over global recession

TOKYO (Reuters) – US equity futures, Asian stock markets and oil prices hit lows of several months on Monday after concerns over escalating tensions between China and Mexico Washington's threat to Mexico on tariffs that could tilt the global economy into recession.

E-mini futures for the S & P500 fell by 0.5% at the start of the Asian trade, to 2,738, near their March 2002 low, while Japan's Nikkei slid 1 , 1% to reach its lowest level in four months.

The broadest MSCI index of Asia-Pacific equities outside Japan did not change much at the start of trading, but is still barely above the four-month low. The CSI 300 index of Chinese stocks rose 0.9%, but has remained in its recent range.

A private survey of the Chinese manufacturing sector, released on Monday, revealed a modest increase in factory activity as export orders rebounded after a contraction.

Yet a slightly better reading should not allay the growing fears about the economic impact of a growing trade dispute with the United States. Indeed, a series of recently released Chinese data, including an official survey of the country's manufacturing industry last week, revealed mounting pressure around the world. 2 economy.

Tensions intensified over the weekend as the two countries clashed for reasons of trade, technology and security.

A senior Chinese official and trade negotiator said on Sunday that the United States could not exert pressure to impose a trade deal on China, refusing to ask whether leaders of the two countries would meet at the G20 summit to reach a okay this month. .

China will investigate whether FedEx Corp has damaged the legal rights and interests of its customers, the official Xinhua news agency reported on Saturday after Chinese telecommunications giant Huawei announced the misappropriation of its packages.

"We could see this as a retaliatory action against Washington's ban on Huawei. China could put FedEx on the black list of unreliable companies. We could witness more attacks from individual companies, "said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The clash between the world's two largest economies goes beyond trade, with tension becoming even stronger before the thirtieth anniversary of the Chinese army's bloody crackdown on protesters around Tiananmen Square in Beijing.

Chinese Defense Minister Wei Fenghe warned the United States not to interfere with security disputes in Taiwan and the South China Sea.

These remarks came after US Defense Secretary Patrick Shanahan said at Saturday's meeting that the US would no longer be "tiptoe" about Chinese behavior. in Asia.

"Nobody now thinks that an agreement would be possible at the G20. It will be a prolonged battle. Investors are rushing to secure assets, "Fujito told Mitsubishi.

Signs that Sino-US friction weighs heavily on the global economy, South Korean exports – seen as an indicator of global growth – fell 9.4% in May, a drop above the median forecast of 5 , 6%, official data. showed Saturday.

(GRAPHIC: Korea exports – tmsnrt.rs/2Kn47VJ)

"Speculators are now building trading positions to bet on a recession. If future US data such as today's ISM survey on the manufacturing sector deteriorates, bearish bets on US equities should gain momentum, "said Masanari Takada, multi-asset strategist at Nomura. Securities.

The gloomy economic outlook has prompted traders to believe that the US Federal Reserve will lower interest rates as soon as possible.

Federal rate futures are now almost fully reducing rates by September, with a 50% chance that rates will change between July 30th and July 31st.

JPMorgan now expects the Fed to cut rates twice this year, a major change from its previous expectations that rates would remain unchanged until the end of 2020.

The 10-year US Treasury yield fell to 2.121%, a nadir last observed in September 2017.

On the oil markets, US crude futures dropped by 1.1% to 52.92 USD, after reaching their lowest level since mid-February earlier in the day.

Brent crude futures fell 1.5% to $ 61.06 per barrel.

Copper futures in Shanghai dropped 0.5% to their lowest level in two years.

In the foreign exchange market, the yen refuge has held up well. The dollar has changed hands at 108.19 yen, falling to 108.17, its lowest level since mid-January.

The euro, which has declined at a steady pace this year, had moved little by 1.11 dollars, against 1.11 dollars last week.

The Chinese yuan traded at 6.9418 for a dollar, close to its 5.9 month low of 6.9497 hit May 17th.

The Mexican peso, hit by Trump's sudden threat to impose tariffs on Friday, has regained some stability, trading at 19.6355 for a dollar after falling 2.5% on Friday.

Mexican President, Andres Manuel Lopez Obrador, hinted Saturday that his country could tighten migration controls to defuse tensions with Trump, adding that he expected "good results" for the talks planned in Washington this week.