BEIJING — Global shares fell sharply Monday after China let its currency to sink to an 11-year low against the dollar, fueling concern that Beijing is using the yuan as a weapon in an escalating tariff war with U.S. President Donald Trump.
Market benchmarks in London and Paris fell more than 2% in early trading while Tokyo closed down 1.7% and Hong Kong declined almost 3%. Frankfurt, Shanghai and Sydney also retreated.
Wall Street was also poised for a sharp downturn, with Dow and S&P futures down about 1.5%.
China’s central bank allowed the yuan’s exchange rate to sink below the politically sensitive level of seven per dollar. That level has no economic significance per se but might fuel trade tensions with the U.S. government, which complains a weak Chinese currency swells the country’s exports and hurts foreign competitors.
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“Markets will brace for trade tensions to boil,” said Vishnua Varathan of Mizuho Bank in a report.
The People’s Bank of China blamed the decline on “trade protectionism,” a reference to Trump’s tariff hikes in a fight over Beijing’s trade surplus and technology policies. Trump rattled financial markets with a threat Thursday to raise duties on additional Chinese imports.
Beijing appears to have decided “the currency is now also considered part of the arsenal to be drawn upon,” said Robert Carnell, analyst at bank ING.
London’s FTSE 100 fell 2.2% to 7,247 and Frankfurt’s DAX lost 1.8% to 11,661. France’s CAC-40 declined 2.1% to 5,243.
Tokyo’s Nikkei 225 fell to 20,720.29 and Hong Kong’s Hang Seng declined 2.9% to 26,151.32. Seoul’s Kospi was 2.6% lower at 1,946.98.
The Shanghai Composite Index dropped 1.6% to 2,821.50 and Sydney’s S&P-ASX 200 retreated 1.9% to 6,640.30. India’s Sensex lost 1.5% to 36,576.42.
Traders also were watching Hong Kong, a major trading center where airline flights and traffic were disrupted by protesters’ calls for a general strike over complaints about a proposed extradition law and other grievances.
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On Friday, the S&P 500 lost 0.7% and the Dow dropped 0.4%. The Nasdaq composite shed 1.3%.
Despite that, the major indexes are all up solidly this year, led by the Nasdaq’s 20.6% gain. The S&P 500 is up nearly 17%.
Trade tension and uncertainty over the outlook for American interest rates have blotted out a better-than-expected corporate earnings results. Earnings for S&P 500 companies are on pace for a drop of 1% from a year ago, better than the 3% decline analysts expected.
ENERGY: Benchmark U.S. crude lost 52 cents to $55.14 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price international oils, shed 72 cents to $61.21 in London.
CURRENCY: The dollar dropped to 106.02 yen from Friday’s 106.59 yen. The euro gained to $1.1173 from $1.1109.
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