Hong Kong’s benchmark Hang Seng fell as much as 3.2 percent on Tuesday, later paring some of its losses. China’s CSI 300 index of shares listed in Shanghai and Shenzhen fell as much as 2.8 percent. Taiwan’s Taiex and Japan’s Topix closed 1.6% and 1.8% lower respectively. In Europe, the regional Stoxx 600 index fell 0.6 percent and London’s FTSE 100 traded flat, with analysts warning of sharper price moves in the coming days if geopolitical tensions worsen. “As market liquidity tends to dry up over the summer, any reactions will intensify,” said Maarten Geerdink, head of European equities at NN Investment Partners. Futures signaled Wall Street’s S&P 500 was down 0.7 percent in early New York on Tuesday, with the contracts tracking the tech-heavy Nasdaq 100 0.8 percent lower. The moves came as Pelosi prepared to meet Taiwanese President Tsai Ing-wen and China stepped up military activity around Taiwan, with heightened US-China tensions raising the possibility of global trade disruptions. “There is speculation, among other things, that the Chinese may make a military signal and/or impose some form of economic sanctions,” Seyran Naib, a strategic analyst at SEB, commented in a note to clients. The yield on the 10-year U.S. Treasury note fell 0.06 percentage points to 2.55 percent, near a four-month low, as the price of the benchmark debt rose. The two-year Treasury yield traded at 2.85%, forming a sharp inverted yield curve pattern that has historically preceded recessions. The yield on Germany’s 10-year bond fell 0.06 percentage points to 0.71%, also the lowest level since early April. “Geopolitics was already very much on people’s minds given the Russia-Ukraine situation,” said Rosie Bullard, portfolio manager at James Hambro & Partners. “If we have more disruption in trading as a result of heightened tensions, markets will struggle and could be a reason for another drop in stocks.” The FTSE All-World index of global shares has fallen 15.6 percent so far this year, driven by Russia’s invasion of Ukraine and rising inflation due to sanctions and trade disruptions that have prompted central banks to raise interest rates. Japan’s yen climbed as much as 0.9 percent to ¥130.39 against the dollar, its highest level in two months, reflecting haven markets. More risk-sensitive currencies fell, with sterling 0.5 percent lower at just under $1.22 and the Australian dollar down 1.4 percent at nearly 69 US cents. Brent crude, the international oil benchmark, fell 0.9 percent to $99.14 a barrel, having closed below $100 since mid-July.
