By Sue Chang, MarketWatch , Dow Jones Newswires
Trump threatens to impose tariffs on $500 billion in Chinese imports
Asian stocks finished mostly higher Friday, aided by a drop in the Chinese yuan against the U.S. dollar, but trade uncertainty continued to weigh on global markets.
The Shanghai Composite Index climbed 2.1%, and Hong Kong's Hang Seng rose 0.8%.
The Chinese yuan hit one-year lows against the dollar Friday after Beijing guided its official exchange rate down by 0.9% to 6.7671 per dollar, the largest retreat in two years. The currency has fallen 2.3% against the dollar in July.
A declining yuan makes Chinese exports less expensive for foreign buyers, but rising protectionism around the globe could limit the ability of export-driven companies to reap its full benefits. The weaker yuan also makes it more difficult for Chinese companies to service dollar-denominated debt.
"Uncertainty continues to plague markets at the moment with the trade situation still about as unpredictable as it can be. But it's becoming a lot harder to ignore the moves for China's currency in the face of a potential currency war," strategists at Deutsche Bank said in a note Friday.
The yuan's fall has elicited criticism from President Donald Trump. He said in an interview Thursday (https://www.cnbc.com/2018/07/19/trump-lays-into-the-fed-says-hes-not-thrilled-about-interest-rate-.html) that increasing interest rates and a stronger dollar puts the U.S. at a relative "disadvantage." The comments depart from a convention in which U.S. presidents refrain from expressing views on the dollar and monetary policy.
Market participants are anticipating an additional two rate increases from the Fed this year.
A stronger dollar also reflects investor optimism over the state of the U.S. economy and what has been a strong earnings season.
The U.S.-China trade spat has yet to make a tangible impact on the U.S. economy, although concerns over escalating tensions have weighed down investor sentiment.
President Donald Trump said that he was "ready" to impose tariffs on up to $500 billion of Chinese goods. Earlier this week, Trump reiterated his threat to raise tariffs on European autos (https://www.wsj.com/articles/wilbur-ross-too-early-to-say-whether-national-security-probe-will-bring-auto-tariffs-1532009573?mod=article_inline), which the European Union has warned would lead to retaliation.
Separately, Chinese authorities are expected to step up support for semiconductor and other high-tech manufacturing sectors rather than easing property regulations and increasing infrastructure projects to bolster the economy, according to Dow Jones Newswires.
In Tokyo, the Nikkei fell 0.3%. Japan's core consumer prices, which exclude fresh food, rose 0.8% on-year in June versus May's 0.7%. However, excluding energy, the inflation index actually slowed to 0.2% versus 0.3% in the previous month, according to Dow Jones Newswires.
Korea's Kospi rose 0.3%, Australia's S&P/ASX 200 gained 0.4%, and Taiwan's Taiex advanced 0.9%.