European Council President Donald Tusk has suggested delaying Brexit for up to a year to give Theresa May time to find a way around the crisis (Aris Oikonomou)

Hong Kong (AFP) – Asian markets sank Wednesday as the possibility of a US-EU trade war shifted into focus after Washington’s tariffs threat, while traders are also spooked by Brexit uncertainty.

The warning from US President Donald Trump’s administration that it would impose levies on more than $11 billion of European imports jolted investors, who had been enjoying a positive run of late thanks to optimism over China-US trade talks.

The development — linked to EU subsidies to planemaker Airbus that Trump says hurt US giant Boeing — stoked concerns about the White House’s hardline protectionist agenda that has taken aim at its biggest trading partners since the tycoon’s election.

It also comes despite negotiators holding a series of meetings since last year ahead of proposed trade talks to resolve the dispute.

“The primary market issues are that this could unwind much of the positivity around a comprehensive trade resolution as the US trade hawks continue to apply pressure on longtime allies,” said Stephen Innes at SPI Asset Management.

“Friend or foe, the latest headline suggests no country is exempt from the wrath of President Trump’s trade agenda.”

The move could dent a rally that has seen markets across the globe enjoy a blockbuster start to the year with most up at multi-month highs.

All three main Wall Street indexes ended lower Tuesday and the losses seeped through to Asia.

Hong Kong shed 0.6 percent and Shanghai lost 0.8 percent, while Tokyo was off 0.7 percent at lunch.

Singapore eased 0.1 percent, Seoul dipped 0.2 percent and Taipei retreated 0.3 percent while Wellington and Jakarta were also well down. Sydney was flat.

– Summit D-Day –

Upheaval in world trade was among the major reasons the International Monetary Fund trimmed its 2019 global growth forecast, with Brexit adding to its worries.

Prime Minister Theresa May will on Wednesday hear at a showdown summit the EU’s decision on her request for an extension to Britain’s exit, which is due Friday, and to avoid an economically calamitous no-deal divorce.

While she has asked for a delay until the end of June, EU heads fear that will not be enough and Council President Donald Tusk has suggested up to a year to find a new way around the crisis.

Observers broadly expect a deal to eventually be made, though US Treasury Secretary Steven Mnuchin said a “hard Brexit” remained possible, adding that authorities were preparing for such an eventuality.

The pound is coming under increasing pressure over the issue though it continues to hold its own for now.

Oil prices edged up as Russian President Vladimir Putin left open the possibility of extending a production cut agreed with OPEC.

“We’ll coordinate with OPEC and take a decision depending on the market situation” when the producers meet in June, he said.

The commodity has enjoyed a bumper 2019 thanks to US-China optimism, sanctions on Iran and Venezuela, a weaker dollar and the recent unrest in Libya.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.7 percent at 21,695.16 (break)

Hong Kong – Hang Seng: DOWN 0.6 percent at 29,974.02

Shanghai – Composite: DOWN 0.8 percent at 3,213.30

Pound/dollar: DOWN at $1.3053 from $1.3056 at 2045 GMT

Euro/pound: DOWN at 86.25 pence from 86.26 pence

Euro/dollar: DOWN at $1.1258 from $1.1264

Dollar/yen: DOWN at 111.13 yen from 111.15 yen

Oil – West Texas Intermediate: UP 15 cents at $64.13 per barrel

Oil – Brent Crude: UP seven cents at $70.68 per barrel

New York – Dow: DOWN 0.7 percent at 26,150.58 (close)

London – FTSE 100: DOWN 0.4 percent at 7,425.57 (close)

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.