Global stocks hit by deepening doubts on trade war truce – Financial Times


Wednesday 15.30 GMT

What you need to know

  • Equity sell-off hits Europe and Asia
  • Concerns mount over extent of trade truce and outlook for economic growth
  • Oil slips on rising US inventories
  • Pound heads further above this week’s lows as Brexit dominates
  • Canadian dollar falls after BoC leaves rates on hold

Hot topic

Global stocks fell on Wednesday after concern over US-China trade relations and worrying signals of economic health from the US bond market fuelled a sell-off on Wall Street overnight.

European bourses tracked falls across Asia that followed one of the biggest sell-offs in US stocks in recent years. The Europe-wide Stoxx 600 was down 0.8 per cent, as was Frankfurt’s Xetra Dax, while London’s FTSE 100 was 1 per cent weaker.

Stocks exposed to the trade dispute were among the biggest fallers, including chipmakers and car manufacturers. The Stoxx index tracking European technology was down 1.2 per cent, with that following industrial metals makers down 1.5 per cent.

The Australian dollar — which can track the outlook for growth in China, the main market for the metals produced by the Sydney-listed miners — fell 0.9 per cent to $0.7270, a five-session low. Australia’s third-quarter GDP missed forecasts, adding to concern about the outlook for 2019.

The trading pattern followed a 3.2 per cent tumble for the S&P 500 index on Tuesday, one of only eight declines of more than 3 per cent in the past five years. The Nasdaq Composite dropped 3.8 per cent, returning to correction territory — defined as a 10 per cent fall from the most recent peak.

In the US, industrials, technology and financial stocks were the worst performers. And the Treasury yield curve — which reflects the difference between shorter and longer term US borrowing rates and is a closely followed bond market barometer of economic sentiment — is flattening, often a harbinger of slower economic growth.

The difference between two and 10-year Treasury yields dropped to less than 12 basis points on Tuesday, a gap not seen in 11 years. US markets were closed on Wednesday, to mark the funeral of President George HW Bush.

“The market decline in the US overnight and the flattening of the yield curve reflect that economic growth momentum is taking over as the primary concern for investors,” said Tai Hui, a JPMorgan Asset Management strategist.

Investors were also worried about the durability of the US-China trade war truce with Donald Trump casting doubt on whether a long-term deal between Washington and Beijing could be struck.

China’s commerce ministry said on Wednesday it was “confident” that a trade agreement with the US could be reached “within 90 days”, in Beijing’s first acknowledgment of the three-month deadline set by Mr Trump.

But on Tuesday night in the US, Mr Trump wrote on Twitter: “We are either going to have a REAL DEAL with China, or no deal at all — at which point we will be charging major Tariffs against Chinese product being shipped into the United States.”

The president added: “Ultimately, I believe, we will be making a deal — either now or into the future . . . China does not want Tariffs!”

Forex

China’s onshore renminbi exchange rate, which moves within a trading band of 2 per cent either side of a daily midpoint set by the People’s Bank of China, was 0.5 per cent weaker at Rmb6.8663. The currency had reached its highest level in more than two months on Tuesday. The offshore rate was 0.3 per cent weaker at Rmb6.8692.

The pound continued to track Westminster’s Brexit drama. After the publication of the UK government’s legal advice on Theresa May’s deal on the terms of departure from the EU, sterling was flat for the session at $1.2721.

The dollar index ticked up 0.2 per cent, with the euro down 0.1 per cent at $1.1330.

The Canadian dollar was 0.9 per cent weaker at C$1.3375 per US dollar after the Bank of Canada left interest rates unchanged — as expected — but delivered a more dovish assessment of the economic outlook than a month ago.

Commodities

Oil prices rose as the market shrugged off a surprise bump in US crude inventories. Brent, the international crude benchmark, was up 0.4 per cent at $62.34, with US West Texas Intermediate 1 per cent higher at $53.78..

Gold was 0.1 per cent lower at $1,236 an ounce.

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