Market turmoil spreads to Asia

White House slaps 25% tariff on Chinese goods
White House slaps 25% tariff on Chinese goods

Asian stock markets slumped Wednesday as jitters spread over Italy's escalating political crisis and renewed US-China trade tensions.

Japan's Nikkei and Hong Kong's Hang Seng both fell around 1.5%, while the Shanghai Composite sank more than 2%.

Markets were calmer in morning trading in Europe, with most major indexes posting small gains or losses.

The declines across Asia came after a sell-off Tuesday in Europe and the United States, where the Dow closed down 1.6%.

Traders in Asia said investors were exiting riskier assets such as stocks after political turmoil in Italy sparked fears over the future of the euro and the White House revived plans to slap tariffs on $50 billion worth of Chinese goods.

Italy is headed for new elections after populist politicians failed to form a government, and investors worry the result could throw the European Union into turmoil. They are demanding higher yields to hold Italian government debt.

"This potential crisis is monumental," Stephen Innes, head of Asia-Pacific trading at foreign exchange firm Oanda, said in a note to clients.

Related: Italy crisis rocks markets. Here's why investors are worried

He pointed out that Italy's economy is far bigger than that of Greece, the source of the last eurozone crisis.

Investors in Asia are also worried about President Donald Trump's hardening stance on trade with China. The administration announced Tuesday that it would proceed with its proposal to impose 25% tariffs on $50 billion worth of goods from China and place new limits on Chinese investments in US high-tech industries.

The decision was a surprise, coming less than two weeks after China and the United States said they had agreed to put threats of new tariffs on hold.

China's Commerce Ministry said the Trump administration's latest announcement is "obviously in violation of the consensus" reached by the two countries in recent talks.

Jingyi Pan, a market strategist at broker IG Group, said the move may be interpreted as a negotiating tactic ahead of Commerce Secretary Wilbur Ross' planned visit to China this weekend for more trade talks. But it's still adding to negative sentiment in Asian markets, she added.

The gloomy mood may not continue in US markets later Wednesday, though. Dow futures were indicating slight gains.

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