* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* MSCI ACWI down 0.05%
* Euro down 0.2%
* Argentina returns to currency controls
* U.S. markets shut for holiday
By Ritvik Carvalho
LONDON, Sept 2 (Reuters) - Global markets remained subdued
on Monday after the United States and China imposed new tariffs
on each other, while the spotlight returned to emerging-market
risk as Argentina imposed capital controls.
Argentina's international dollar bonds dropped to record
lows, its financial stocks tumbled and risk premia shot up after
President Mauricio Macri re-imposed capital controls on Sunday
as the country battled to avoid its ninth sovereign default.
The about-face by Macri, who had previously lifted many
protectionist practices of his predecessor, Cristina Fernandez
de Kirchner, came after the government failed to stem heavy
investment outflows and to shore up its tumbling currency.
MSCI's All-Country World Index .MIWD00000PUS , which tracks
shares across 47 countries, was down 0.04% on the day.
U.S. markets were shut for a holiday on Monday. European
shares ticked higher as surprisingly positive data helped China
weather the latest round of tit-for-tat tariffs between the
United States and China that came into effect over the weekend.
.EU
Washington imposed 15% tariffs on a variety of Chinese goods
and China began to impose new duties on a $75 billion target
list. However, both sides will still meet for talks later this
month, U.S. President Donald Trump said. Trade-sensitive German shares .GDAXI were 0.4% higher and
the pan-European stocks benchmark index STOXX 600 .STOXX was
up 0.63% by midday in London, beginning September higher. It
fell 1.6% in August as the trade war intensified.
"Despite the market's sanguine take, we believe the ultimate
outlook for the trade dispute has become harder to predict with
confidence," said Mark Haefele, chief investment officer at UBS
Global Wealth Management.
"Since trade tensions have become the major driving force
for stocks, even greater than monetary policy, we advise against
adding significantly to equity exposure – particularly for those
who have an adequate strategic allocation."
Income-generating carry positions such as select emerging
market currencies will perform well as central banks ease policy
in response to weaker growth, Haefele added.
Euro zone manufacturing activity contracted for a seventh
month in August as declining demand sapped optimism, a survey
showed, strengthening expectations for monetary easing by the
European Central Bank next week. At its July meeting, the ECB all but promised to ease policy
as the growth outlook worsened.
Italian bond yields fell towards recent multi-year lows
after Italy's prime minister said at the weekend talks on a new
government should be completed by Wednesday. GVD/EUR The
5-Star Movement and the Democratic Party held talks over the
weekend on cabinet posts and a common agenda In currency markets, the dollar was 0.1% higher against a
basket of peers. .DXY .
The euro was 0.2% lower at $1.09665 EUR= , not far from
two-year low of $1.0963 hit in U.S. trade on Friday.
TRADE WAR
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS dropped 0.24%, led by 0.5% drop in Hong Kong's
Hang Seng .HSI after another weekend of violent
anti-government protests.
Chinese shares rose, however, with the CSI300 index
.CSI300 gaining 1.1% despite the trade row escalation. A
pledge by China's State Council to boost support for the economy
helped. Caixin/Markit Manufacturing Purchasing Managers' Index
(PMI), a private sector survey, on Monday showed factory
activity unexpectedly expanded in August, though gains were
modest and contrasted with official data that pointed to further
contraction. Washington imposed tariffs on a variety of Chinese goods and
while Beijing imposed new duties on U.S. crude, the latest
escalation in a bruising trade war. Studies suggest
the tariffs will cost U.S. households up to $1,000 a year.
Many market players say the market's reaction was likely
exaggerated by algorithm-driven players' flows in thin trading
at the start of Asian trade on Monday. Liquidity could be even
more limited than usual because of a U.S. holiday on Monday.
"(The market move) goes to show you how many data mining
algos are involved with equity-linked compared with
forex-linked. Was anyone surprised by these tariffs that took
effect yesterday?" said Takeo Kamai, head of execution at CLSA
in Tokyo.
Tension is also running high in Hong Kong. Police and
protesters clashed in some of the most intense violence since
unrest erupted more than three months ago Thousands of protesters blocked roads and public transport
links to Hong Kong airport and police made several arrests after
demonstrators smashed CCTV cameras and lamps and dismantled
station turnstiles.
China, eager to quell the unrest before the 70th anniversary
of the founding of the People's Republic of China on Oct. 1, has
accused foreign powers, particularly the United States and
Britain, of fomenting the unrest.
Oil prices fell on Monday. Brent crude LCOc1 futures
dropped 0.15% to $59.16 a barrel; U.S. West Texas Intermediate
(WTI) crude futures CLc1 were flat at $55.1 O/R