Share markets fell for a third straight day on Tuesday as fears about a drawn out global trade war, protests in Hong Kong and a crash in Argentina’s peso currency kept investors huddled in bonds, gold, and the Japanese yen for safety.
Early 0.3%-0.6% drops from Europe’s main indexes after some heavy falls in China, Hong Kong, Japan and other parts of Asia left MSCI’s main 47-country world index down nearly 4% for August so far.
Hong Kong’s airport, the world’s busiest cargo hub, had reopened after protests closed it the previous day, but the mood remained febrile after weeks of increasingly violent demonstrations in the Chinese-ruled territory.
Investors were also still assessing the wider damage caused by Monday’s crash in Argentina after its President Mauricio Macri became the latest pro-free market, pro-reform leader to be given a beating at the polls by a populist rival.
The response was brutal. The peso collapsed 15%, equities crumbled 48% in dollar terms —the second biggest one-day slump anywhere since 1950— and the bond market crashed, with a 100-year bond that investors had recently gobbled up tumbling 20% as fears of yet another government default spiked.
“Yes, Argentina is a small economy. However, the last thing global markets want to see is another market-friendly government fall to populism and/or geopolitics,” said Rabobank strategist Michael Every.
He added the “wall of worry” also now includes: the trade war, Brexit, China, Hong Kong, Iran, Italy, Kashmir, North Korea, South China Sea, Turkey, and Venezuela. “Did I miss anything with tired eyes?”
With so much uncertainty around, Europe’s traditional safety play, the 10-year German government bond, saw yields hit a new record low.
Equivalent U.S. Treasury yields were straining for their lowest in almost three years, gold was pinned close to six-year highs and the yen was within a whisker of a seven-month peak versus the dollar.
ING analysts said the yen was benefiting “from the best of both worlds”, pointing to general risk aversion and a rush to price in more interest rate cuts by the Federal Reserve. They think the yen, at 105.32 in Europe, will rally to 102 or 103 per dollar later this year.
There was also the danger that moves could be amplified as many traders and investors are off for European and U.S. summer holidays. Yet, there was no shortage of gloomy news for investors looking to catch their breath from several months of market ructions.