Global stocks stalled in Q3 as bonds boom and dollar zooms

Oil prices fall as China’s economic outlook still weak

LONDON, Sept 30, (RTRS): It has been a pivotal few months for financial markets. China and Europe have halted the global stocks rally, oil has cooled dramatically and rising recession worries have sent gold and government bonds charging again.

Perhaps it was to be expected after such a flying start to the year, but the deterioration in risk appetite has included some eye-catching milestones.

The switch back into support mode by the top global central banks has swollen the amount of bonds trading at negative rates – where investors pay rather than get paid to lend – to a record $17 trillion.

Over 3.5% returns on US Treasuries following the first Federal Reserve rate cuts since the financial crisis mean they are now having their best year since 2011 while calmer politics and ECB stimulus have given Italian bond markets their best quarter since Mario Draghi’s 2012 “whatever it takes” vow.

On one hand, Wall Street’s S&P 500 has added another 1% to its 19% H1 surge, Japan’s Nikkei is up 2.4% and Turkey’s battered stock market has bounced back almost 12% after torrid last 18 months.

In the drop zone though, Hong Kong’s protests saw the Hang Seng lose 9% in its worst quarter in four years and plenty of emerging markets from South Africa to Saudi Arabia have buckled badly too.

MSCI’s all country world index, which now tracks around 2,700 stocks in 49 countries is set for its first quarterly dip of the year but a near 2% rebound this month has limited the damage to a modest 0.5%.

A weaker yuan means China’s big bourses are down as well in dollar terms despite Beijing’s stimulus efforts in the face of the trade war. But then again so too are London, Frankfurt and Paris in Europe.

The dollar is up over 3% against a basket of top global currencies but sterling’s additional Brexit worries mean it is down a bit more and the euro is more than 4% lower after the ECB’s cut its interest into even more negative territory.

It’s been the worst quarter for the Australian dollar, meanwhile, since the end of 2016 as its China-sensitive economy has spluttered while 6.5% has been lopped off its Antipodean cousin, the New Zealand dollar .

Among commodities there has been a big split too, but there it has been between what’s precious and what’s not.

Safe-haven gold is up 4.5% and is now on its longest quarterly winning streak since 2011 having been rising since Q4 2018. Equally precious palladium meanwhile is up for a sixth straight quarter - its best run since 2000.

Industrial bellwether and China proxy copper is at the other end of the spectrum. The red metal is down for a sixth quarter in the last seven. It has been black for oil too - it is down over 8% though that is after a 25% surge in the first half of the year.

US

US stocks were higher on Monday after the technology sector surged on the back of gains in Apple shares, helping Wall Street’s major indexes recoup most of their losses from the previous session.

Shares of the iPhone maker rose 2.3% as Chief Executive Officer Tim Cook told a German daily that sales of the newly launched phones were off to a strong start, while JP Morgan raised its forecast for shipment volumes. Microsoft Corp climbed 1%.

Cook’s commentary correlates to how the broader US economy is holding up, said Phil Blancato, chief executive officer of Ladenburg Thalmann Asset Management in New York.

The technology sector gained 1.2%, the most among 11 major S&P sectors. Only energy stocks were trading in the red, tracking a fall in oil prices.

Sentiment also got a boost after White House trade adviser Peter Navarro dismissed reports that the Trump administration was considering delisting Chinese companies from US stock exchanges as “fake news.”

The news had sent the S&P 500 and Nasdaq to a more than three-week low on Friday.

US-listed shares of Alibaba Group Holding Ltd, Baidu Inc and JD.com Inc were up between 0.8% and 1.7% on Monday.

The main indexes are on course to end the third quarter with their worst performance so far this year, rattled by a host of factors including an escalation in USChina trade tensions, the inversion of an important part of the US yield curve and political turmoil in Washington.

At 12:29 pm. ET, the Dow Jones Industrial Average was up 162.02 points, or 0.60%, at 26,982.27, the S&P 500 was up 20.93 points, or 0.71%, at 2,982.72. The Nasdaq Composite was up 59.50 points, or 0.75%, at 7,999.13.

Merck & Co gained 2.1% as it presented promising data for its Lynparza cancer drug, which it develops in partnership with Britain’s AstraZeneca. Its shares helped the healthcare sector gain 1.3%.

Newell Brands jumped 6.3% after SunTrust Robinson Humphrey upgraded the household goods maker to “buy”.

UK

Britain’s FTSE 100 index closed lower on Monday, weighed by oil majors as concerns over global growth resurfaced due to a weak economic outlook for the world’s largest crude importer, China, amid simmering trade tensions with the United States.

The exporter-heavy FTSE 100 index fell 0.2%, slightly off its near two-month high, and the mid-cap FTSE 250 index dropped by the same margin.

Shell and BP were the biggest drags on the main bourse, tracking a fall in crude oil prices.

Still, the FTSE 100 index had its best month since June, bouncing back from losses in August that were triggered by escalating trade jitters and accompanying fears of a global recession, as well as sustained Brexit anxiety. The domestically-focussed FTSE 250 registered its biggest monthly rise since April.

On a quarterly basis, the main bourse was marginally down, while the mid-cap index enjoyed its third consecutive quarter in positive territory.

GlaxoSmithKline and AstraZeneca both reported trial results on Saturday that will likely make their competing drugs available to a wider group of ovarian cancer patients, possibly helping GSK catch its rival in a highly contested drug class.

Shares of GlaxoSmithKline rose 1%, while and AstraZeneca dipped 1.7% after nine consecutive sessions in the black.

Global miners also contributed to the session’s losses with a 1% fall as sentiment around U.S.-China trade remained uneasy.

Europe

European shares were little changed on Monday as investors shrugged off fresh concerns about US-China trade negotiations and looming US tariffs on European imports.

A report on Friday said that the United States might limit Chinese company listings on its stock exchanges, fueling more US-China trade angst ahead of critical negotiations next week.

Trade-sensitive technology shares were down 0.2%, after earlier leading declines on the pan-European STOXX 600 index. After falling in early trading, the benchmark European index was up 0.1%.

Equity markets rallied in September on cues of monetary easing from the European Central Bank and the US Federal Reserve, and on hopes of a resolution in an economically damaging US-China trade war.

The STOXX 600 index is set to close the month with a 3% rise, marking its third straight quarterly gain.

However, the pace of growth has slowed substantially from a 12% increase in the first quarter of the year as concerns linger about the health of the euro zone economy as well as the trade war.

Shares in Airbus dipped 0.1%, as the WTO said the European planemaker and its US rival Boeing had received billions of dollars of illegal subsidies in a pair of cases that have run for 15 years.

In a bright spot, HomeServe PLC jumped 3.8%, to the top of the STOXX 600, after RBC raised its rating on the British home repairs provider’s stock to “outperform.”

GlaxoSmithKline gained 1.7% after its maintenance therapy for a form of ovarian cancer reduced the risk of disease progression or death.

Asia

Shares were mostly lower in Asia after talk of limits on US stock listings by Chinese companies undermined optimism over progress in trade negotiations.

Chinese manufacturing data was slightly better than analysts’ estimates, but Friday’s downbeat mood on Wall Street carried over into Monday’s trading.

Tokyo’s Nikkei 225 index lost 0.6% to 21,755.84 and the Shanghai Composite dropped 0.9% to 2,905.19. India’s Sensex declined 0.8% to 38,506.97. Hong Kong’s Hang Seng added 0.4% to 26,056.60, while Sydney’s S&P ASX 200 gave up early gains, losing 0.4% to 6,688.30. The Kospi in South Korea advanced 0.6% to 2,063.05. Shares also fell in Indonesia and Thailand.

Oil

Oil prices slipped on Monday as China’s economic outlook remained weak even as manufacturing data improved as an ongoing trade war with the United States weighs on demand growth at the world’s largest crude importer.

Brent crude futures fell 20 cents to $61.71 a barrel by 0632 GMT while US West Texas Intermediate (WTI) crude futures edged down 3 cents to $55.88 a barrel.

Brent is set to rise 2.1% in September, its first monthly gain since June, with prices lifted by an unprecedented attack on Saudi’s oil facilities on Sept. 14 that reduced its production by half. WTI is set to rise 1.4% this month.

World’s top oil exporter Saudi Arabia has restored capacity to 11.3 million barrels per day, sources told Reuters last week although Saudi Aramco has yet to confirm it is fully back online.

“Most of this is already priced in when the Saudis said they were going to do it (resume production) fast,” said Avtar Sandu, a senior commodities manager at Phillip Futures in Singapore.

While Saudi Arabia is maintaining exports by using crude from inventories and spare production capacity, how much of it is actually restored could only be determined in the next few weeks, he added.

Currencies

Sterling edged up on Monday, benefiting in particular from the euro’s weakness and shrugging off data pointing to a contraction in the UK economy as investor attention remained focused on Brexit news flow.

The British currency rose as much as 0.8% against the euro as the single currency tumbled after Reuters reported that Germany’s leading economic institutes had made downward revisions to growth forecasts for Europe’s biggest economy.

It also rose half a percentage point to the dollar at one point before easing back. By 1500 GMT it was up 0.1% at $1.2302 , having fallen 1.6% last week. Against the euro, it was up 0.4% at 88.67 pence, having climbed all the way to 88.31 pence.

Pressured by Prime Minister Boris Johnson’s apparent determination to take Britain out of the European Union on Oct. 31 even without an exit agreement, the pound was also hit on Friday by comments from a Bank of England policymaker who said Brexit uncertainty could warrant looser monetary policy.

The pound did not react to the data, given that there have been few signs of progress in breaking the Brexit deadlock with the European Union.