* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Nikkei fall 2.3%, Asia shares ex-Japan -0.8%
* Yen gains, yields dive amid safe-haven rush
* Yuan under pressure as trade war escalates
* Gold jumps to highest since April 2013, oil slides
By Wayne Cole
SYDNEY, Aug 26 (Reuters) - Asian shares were a sea of red on
Monday as the latest salvo in the Sino-U.S. trade war shook
confidence in the world economy and sent investors steaming to
the safe harbours of sovereign bonds, gold and the Japanese yen.
Yields on benchmark 10-year Treasury debt US10YT=TWEB
dropped to their lowest since mid-2016, while gold hit its
highest since April 2013 as risk was shunned.
The Chinese yuan also came under pressure, with the dollar
quoted up at 7.1710 CNH=D3 and markets braced for more
intervention from Beijing to support the currency.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS shed 0.8%, and Australia .AXJO 1.7%.
Japan's Nikkei .N225 lost 2.3%, while E-Mini futures for
the S&P 500 ESc1 were down 1.0%.
Wall Street nose-dived on Friday when President Donald Trump
announced a 5% additional duty on $550 billion in targeted
Chinese goods, hours after China unveiled retaliatory tariffs on
$75 billion worth of U.S. products. At the G7 meeting in France over the weekend, Trump caused
some confusion by indicating he may have had second thoughts on
the tariffs.
But the White House said on Sunday that Trump wished he had
raised tariffs on Chinese goods even higher last week, even as
he signalled he did not plan to follow through with a demand
that U.S. firms close operations in China. Trump is now set to hold a joint news conference with French
President Emmanuel Macron later on Monday. "There is an uneasy feeling that the very fragile
negotiations are spiralling out of control," wrote analysts at
ANZ in a note.
"The escalation suggests uncertainty will continue to weigh
on global trade, industrial production and investment, with no
sign of a resolution."
The latest broadside overshadowed a pledge by Federal
Reserve Chair Jerome Powell to "act as appropriate" to keep the
U.S. economy healthy, although he stopped short of committing to
rapid-fire rate cuts. The markets clearly believe, however, the Fed will have to
act aggressively and are fully priced for at least a
quarter-point cut in September and more than 110 basis points of
easing by the end of 2020. FEDWATCH
"Trump shows no signs of moderating his destructive trade
policies," said JPMorgan analyst Adam Crisafulli.
"Central banks can't fully ameliorate the downside of a
global trade war," he added. "Companies will enter lockdown mode
in terms of spending, and eventually hiring, until at least the
November 2020 election amid all the uncertainty."
YIELD INVERSION
Yields on 10-year Treasury notes US10YT=RR were down at
1.476%, having dived from a top of 1.66% on Friday, leaving them
almost matching two-year yields.
"We continue to remain long 10's, targeting 1.3% due to a
combination of weakness in the global economy and trade war
uncertainty filtering through into a weaker U.S. economy," said
Priya Misra, head of global rates strategy at TD Securities.
"This will force the Fed to ease beyond a 'mid-cycle
adjustment to policy'," he added. "We believe that the market is
underpricing the risks of additional rate cuts in 2020."
The drop in yields initially swept the legs out from under
the dollar, which slid 0.5% on Friday against a basket of
currencies and was last trading at 97.654 .DXY .
It took a hit on the yen, considered a safe haven thanks to
Japan's position as the world's largest creditor nation, and was
last down 0.3% at 105.04, having shed 1% on Friday.
The next major chart point is a low around 104.10 briefly
touched during the "flash-crash" of early January.
The euro was firm at $1.1145 EUR= , having climbed 0.6% on
Friday, although restrained somewhat by speculation the European
Central Bank will also have to ease aggressively next month.
The dollar fared better elsewhere, making inroads on most
emerging market currencies. The Turkish lira TRY=D3 briefly
tumbled as far as 6.4700 per dollar at one stage.
Spot gold got a boost from the slide in yields, rising 1.2%
to $1,544.83 per ounce XAU= and touching its highest since
April 2013.
Oil prices went the other way on worries the tariffs dispute
would crimp world demand. O/R
Brent crude LCOc1 futures slid 87 cents to $58.47, while
U.S. crude CLc1 lost $1.02 to $53.15 a barrel.
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