Tariff fears hit car shares, lira back on the rack

LONDON (Reuters) - World shares crept higher on Thursday as cars become the latest focus of U.S. protectionism worries, while Turkey’s lira slumped back after a huge emergency interest rate hike failed to stem its problems.

Markets had plenty coming up including the read-out from the ECB’s most recent meeting, but in Asian and early European trading it was U.S. plans to launch a probe into auto imports that drove the biggest moves.

Japan’s Nikkei ended down 1.1 percent after Nissan, Mazda and Toyota all skidded [.T], while BMW, Daimler and Volkswagen (VOWG_p.DE) reversed between 1.7 to 2.3 percent though the broader market nudged forward. [.EU]

“The carmakers are getting a bit of a bashing which is not really surprising following Trump’s comments overnight,” said CMC Markets analyst Michael Hewson.”

“Personally I think he is playing to his voter base, but in the broader context of the trade story it is not positive.”

Trump’s Commerce Secretary Wilbur Ross said on Tuesday there was “evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry”, and promised a “thorough, fair and transparent investigation”.

Trump said on Twitter: “There will be big news coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!”

The worry for economists is that the move could lead to tariffs similar to those imposed on steel and aluminum in March.

Adding to jitters, Trump had also called for “a different structure” in any trade deal with China, fuelling uncertainty over the negotiations. Beijing had fired back calling the car probe an “abuse” of national security clauses.

In the currency markets it was Turkey’s lira that remained the big mover.

It weakened as much as 3 percent, surrendering most of gains it made the previous evening after the country’s central bank jacked up its key interest rate by 300 basis points in an emergency move to prop up the plunging currency.

Investors have sold the lira on concerns about the central bank’s ability to tame double-digit inflation, particularly after President Tayyip Erdogan - a self-described “enemy of interest rates” - said he expected to assert more policy control after June 24 elections.

The lira, which initially firmed in early trade, weakened as far as 4.7414 from a close of 4.59. It hit a record low of 4.9290 on Wednesday before the central bank move.

The dollar dipped after Federal Reserve meeting minutes on Wednesday had indicated its policymakers weren’t looking to raise U.S. interest rates too fast, though another rise will be warranted “soon” if the economy stays on track. [/FRX]

It helped the euro off its recent six-month low. It was also aided as China signaled its confidence in the currency and as calm returned to Italian bond markets.

Italian President Sergio Mattarella on Wednesday gave political novice Giuseppe Conte a mandate to lead the first government in Italy made up of anti-establishment parties that have vowed to shake up the European Union.

“I’m preparing now to defend the interests of all Italians in all places, in Europe and internationally,” Conte told reporters after holding two hours of talks with Mattarella.

Italy’s 10-year bond yield fell 5 basis points to 2.36 percent, pulling back from Wednesday’s 14-month highs. The Italian/German 10-year bond yield gap was 7 bps tighter at 183 bps. [GVD/EUR]

That is still well below benchmark 10-year U.S. Treasury yields though, which have drifted back to the 3-percent threshold in recent days. [/US]

It has been part of a broader flight to safety across financial markets. The dollar was down 0.3 percent against the yen to 109.92.

“With Trump’s unpredictable behavior leaving investors on edge, the Japanese yen has scope to appreciate further in the short term,” said Lukman Otunuga, an analyst at FXTM.

In commodities markets, U.S. crude was down 0.2 percent at $71.68 a barrel. Oil prices fell on Wednesday after an unexpected rise in U.S. crude and gasoline inventories.

Brent futures were 0.7 percent lower at $79.22 a barrel, continuing to move lower after rising above $80 for the first time since November 2014 last week. [O/R]

The most-traded iron ore futures on the Dalian Commodity Exchange rose for the first time in six sessions on Thursday, gaining 0.3 percent.

Weak commodity prices continued to put pressure on Australian shares, which ended 0.2 percent lower, extending losses into a sixth consecutive session. New Zealand’s benchmark S&P/NZX 50 index was 0.7 percent higher.

Gold was slightly higher with spot gold trading at $1,296 per ounce. [GOL/]

Additional Reporting by Andrew Galbraith in Shanghai; Editing by Peter Graff