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Global stocks slump after Donald Trump’s key adviser quits; fuels trade war fears

Click to play video 'Trump economic adviser Gary Cohn resigns' Trump economic adviser Gary Cohn resigns
WATCH ABOVE: Gary Cohn steps down as top economic adviser to Trump due to planned tariffs on imports of steel and aluminum – Mar 7, 2018

Global stocks and the dollar fell on Wednesday after a strong advocate of free trade resigned from the White House, fanning fears that U.S. U.S. President Donald Trump will proceed with protectionist tariffs and risk a trade war.

Economic adviser Gary Cohn, seen as a bulwark against protectionist forces within the Trump administration, said on Tuesday he was leaving, sparking a global sell-off across a number of major asset classes.

READ MORE: Donald Trump’s top economic adviser Gary Cohn quitting post over steel tariffs

MSCI’s world equity index, which tracks shares in 47 countries, was down 0.2 per cent, having seen some strength in Asian trading following news that South and North Korea would hold their first summit in more than a decade.

The pan-European Stoxx 600 was down 0.4 per cent, with Germany’s DAX, home to many export-led companies, down 0.5 per cent.

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European car-makers, which face the risk of a hike in import tariffs to the United States, were among the worst performers, falling 1.1 per cent.

WATCH: EU threatens peanut butter tariff one in response to proposed U.S. steel, aluminum duties

Click to play video 'Peanut butter tariff: EU threatens one in response to proposed U.S. steel, aluminum duties' Peanut butter tariff: EU threatens one in response to proposed U.S. steel, aluminum duties
Peanut butter tariff: EU threatens one in response to proposed U.S. steel, aluminum duties – Mar 7, 2018

READ MORE: Dow slumps for 5th straight day amid Trump’s tough talk on tariffs

Equity futures pointed to the U.S. S&P 500 index opening 0.8 per cent lower.

“The implication is that without the restraining influence of Cohn on Trump, the president will now have a free hand to press ahead with further tariffs and generally up the ante on trade,” said Neil Wilson, an analyst at ETX Capital.

“This in itself does not bode well for risk despite that small boost we saw on news that North Korea could consider de-nuking.”

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WATCH: North Korea open to talks with U.S. and halting nuclear pursuit during negotiations

Click to play video 'North Korea open to talks with U.S. and halting nuclear pursuit during negotiations: South' North Korea open to talks with U.S. and halting nuclear pursuit during negotiations: South
North Korea open to talks with U.S. and halting nuclear pursuit during negotiations: South – Mar 6, 2018

Risk aversion

Cohn’s departure rippled through foreign exchange markets, with the U.S. dollar falling 0.4 per cent and 0.2 per cent respectively against the Japanese yen and Swiss franc — both seen as safe-havens in times of uncertainty.

The dollar is just off a 14-month low against the yen hit on Friday.

READ MORE: Canada won’t be spared from Trump’s steel tax, White House official confirms

“The worst outcome for financial markets, in terms of potential to create volatility, would be a confirmation of rising trade friction and benign neglect of the dollar in the short term,” said analysts at ANZ.

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The Canadian dollar and the Mexican peso both retreated by around 0.5 per cent against the dollar as Cohn’s departure was seen as raising risks that Washington could walk away from NAFTA negotiations.

Other emerging market currencies that typically move in sympathy with the dollar were lower, with the South African rand and Russian rouble both down around 0.5 per cent against the dollar.

WATCH: Should Trump be using tariffs as negotiating tactics?

Click to play video 'Should Trump be using tariffs as negotiating tactics?' Should Trump be using tariffs as negotiating tactics?
Should Trump be using tariffs as negotiating tactics? – Mar 5, 2018

Commodities fell on worries that trade friction could slow global growth, with Brent crude futures giving up the previous day’s gains to drop 1.2 percent.

Copper on the London Metal Exchange lost 0.9 per cent, paring a 1.4 per cent gain from the previous session.

European government bonds rallied, with yields across the eurozone falling by 1-3 basis points, following similar strengthening in U.S. Treasuries overnight.

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WATCH: U.S. Treasury Secretary responds to Cohn resignation

Click to play video 'U.S. Treasury Secretary responds to Cohn resignation' U.S. Treasury Secretary responds to Cohn resignation
U.S. Treasury Secretary responds to Cohn resignation – Mar 7, 2018