Trade angst, growth scares haunt global stocks as bond yields slide

Oil slips further below $58 as economic gloom weighs

LONDON, Oct 3, (RTRS): World stocks hovered near four-week lows on Thursday and yields on major benchmark bonds slipped after Washington moved to impose new tariffs on European goods, fuelling fears about global growth and dousing risk appetite.

MSCI’s index of world stocks slipped 0.2%. The eurozone benchmark index eked out small gains after suffering their worst day since the early August selloff on Wednesday, when the US got the go-ahead to impose tariffs on $7.5 billion of European goods.

Washington will enact 10% tariffs on Airbus planes and 25% duties on French wine, Scotch and Irish whiskies and cheese from across the continent as punishment for illegal EU subsidies to Airbus.

But a reduction in the initial list propped up some sectors. Food and beverage stocks and industrial goods enjoyed healthy gains. France’s CAC index rose 0.3%. German markets – a weather vane for exports – were closed for a national holiday.

Meanwhile, fresh data showed UK services activity unexpectedly contracted, suggesting country was flirting with recession. The FTSE 100, already in the grip of Brexit uncertainties, extend losses to 0.8%.

The latest US-European trade tensions added to fears over the standoff between Washington and Beijing, which has cast a shadow over global growth prospects. Earlier in the week, disappointing data on US manufacturing and the jobs market suggested the trade war with China had damaged the world’s largest economy.

Asian shares had racked up losses earlier in the day. Japan’s Nikkei stock index closed down 2%, its biggest oneday decline since Aug. 26.

US stock futures indicated a flat opening after shares fell the most in nearly six weeks on Wednesday. All three major New York share indexes lost more than 1.5%.

The flight to safety saw yields on two-year US Treasury yields slip to 1.4560%, nearing a two-year low of 1.4280%. Adding to pressure on yields was a weak US jobs report, boosting expectations the Federal Reserve will cut interest rates this month.

Traders see a 74% chance the Fed will cut rates by 25 basis points to 1.75%-2.00% in October, up from 39.6% on Monday, according to CME Group’s FedWatch tool.

Brent crude prices slipped 0.3% to $57.44 per barrel. Energy traders are worried about a slowing global economy, an over-supplied market and geopolitical friction in the Middle East.

US

US stocks turned positive in choppy trading on Thursday as US services sector activity slowed to a three-year low, raising expectations of another interest rate cut by the Federal Reserve to stem a wider economic downturn.

Wall Street’s main indexes dropped about 1% after the ISM’s non-manufacturing activity index for September fell to 52.6 from 56.4 the month before and below expectations of 55.0. Still, a reading above 50 denoted an expansion in the sector.

But the indexes were back in the positive territory as bets of a Fed rate cut in October jumped to 92.5% from 39.6% on Monday, according to CME Group’s Fed Watch tool. The Fed’s next policy meeting will be held at the end of the month.

Market participants now await a pivotal jobs report on Friday after dismal manufacturing and hiring data triggered two days of sharp losses, with the indexes recording their deepest one-day percentage slide in six weeks on Wednesday.

PepsiCo Inc rose 4.1% after the company beat quarterly expectations as higher advertising and new lowcalorie versions of Gatorade boosted demand for its beverages in North America.

Its shares propped up the consumer staples sector by 0.75%. Nine of the 11 major sectors were higher.

The benchmark index is now 4.5% below its all-time high hit in July even though it came within striking distance of that level two weeks ago.

UK

London’s FTSE 100 lost more ground on Thursday after a combination of Brexit worries and the approval of US trade tariffs on a list of European goods led to its worst day in more than 3-1/2 years in the previous session.

Small-cap fashion retailer Ted Baker Plc tanked to a more than 8-1/2 year low after its second profit warning this year. The main index, which had suffered its worst one-day drop since before the 2016 Brexit vote on Wednesday, was dragged 0.5% lower, mainly due to a more than 1% drop in oil majors Shell and BP.

Stocks trading ex-dividend also weighed on the blue-chip index, with packaging firm DS Smith, tobacco firm BAT, ad firm WPP, housebuilder Taylor Wimpey and retailer Kingfisher dropping between 2.6% and 5%.

The mid-cap FTSE 250 was roughly flat by 0741 GMT, with most investors wary after Prime Minister Boris Johnson made a final Brexit pitch to the European Union.

The FTSE 100 is on course for its steepest weekly fall in nearly a year.

News-driven moves saw Ted Baker slump 35%, on course for its worst day ever, after it posted a first-half pre-tax loss and warned that unseasonably warm weather, heavy discounting by rivals and weak consumer demand would hit full-year profit.

Ted Baker’s stock has lost almost two-thirds of its value this year and its chief executive officer said the company was facing the most difficult trading conditions in decades.

Europe

European shares steadied on Thursday after logging their worst day since last December on the slapping of US tariffs on a raft of European exports, with a bounce for Airbus and luxury goods makers pushing main indexes back into the black.

The blue-chip and wider STOXX 600 pan-European indexes sank almost 3% on Wednesday after the World Trade Organization approved 10% tariffs on European-made Airbus planes and 25% duties on goods ranging from French wine to Scotch whisky.

After the initial shock of the decision, however, read as threatening a new transatlantic trade war, many analysts said that the detailed list of products affected showed the actual economic impact of the tariffs should be minimal.

Shares of Airbus, down 2% on Wednesday, jumped 4.5% in early trade, as the list - published after European markets closed on Wednesday - showed it had exempted some Airbus parts.

Luxury brands including French spirits maker Remy Cointreau and Louis Vuitton owner LVMH were also excluded and the eurozone blue-chip index gained 0.4%.

The broader pan-European STOXX 600 index edged 0.1% higher, with the food & beverage sector leading gains with a 0.9% rise.

Asia

Asian stocks fell for a fourth day Thursday as weaker US manufacturing and hiring data fueled jitters about the global economy.

Tokyo’s Nikkei 225 fell by an unusually wide margin of 2% and market benchmarks in Hong Kong, Sydney and Southeast Asia also retreated. Chinese and Korean markets were closed for a holiday.

The Nikkei 225 fell to 21,342.99 and Hong Kong’s Hang Seng lost 0.5% to 25,903.46. Sydney’s S&P-ASX 200 fell 2.2% to 6,495.20.

India’s Sensex opened down 0.5% at 38,110.06. New Zealand, Taiwan and Southeast Asian markets also fell.

Oil

Oil slipped further below $58 a barrel on Thursday, pressured by concerns about global economic growth, oil demand and signs of excess supply despite OPEC-led cuts.

Eurozone business growth stalled in September, a survey on Thursday showed, a day after the US announced import tariffs on European Union products. US crude inventories rose 3.1 million barrels last week, more than forecast.

“It is simply impossible to predict where the next significant price support will come from as the focus is firmly on economic developments,” said Tamas Varga of oil broker PVM.

“And those are anything but optimistic,” he added.

Brent crude fell 13 cents to $57.56 a barrel by 1100 GMT, after tumbling 2% in the previous session. US West Texas Intermediate (WTI) crude dropped 13 cents to $52.51.

Lending oil some support were hopes that the United States and China might make progress in resolving their trade dispute and figures showing output in the United States - which has been the fastest source of supply growth - fell in July.

“Next week US-China trade talks remain the unknown variable which could lend a modicum of support,” said Stephen Innes, market strategist at AxiTrader. The talks are set to resume on Oct. 10.

This year, Brent has risen about 7%, supported by supply cuts led by the Organization of the Petroleum Exporting Countries and allies including Russia, plus involuntary outages such as a drop in Iranian and Venezuelan exports due to US sanctions.

Nonetheless, concern about the worsening economic outlook has overshadowed support from the supply side and the prospect of further output disruption in the Middle East appears of limited concern to investors.

Currencies

The dollar rebounded from a near one-month low versus the Japanese yen on Thursday in choppy trading, with markets dogged by risk aversion before US data later in the day.

“We are not seeing a big selloff in the dollar as there is a broad undertone of risk aversion in the markets,” said Morten Lund, a currency strategist at Nordea.

Against the yen, the dollar pulled away from early lows and was broadly steady at 107.12 yen. It was still down more than 1% from a high of 108.44 yen hit earlier in the week.

Expectations that the US economy would continue to outperform other major economies and put pressure on the US central bank to slow its rate cutting cycle were dampened this week after weak manufacturing surveys. Data on Tuesday presented a dire picture of the sector with the Institute for Supply Management reading falling to its lowest level in more than 10 years.

Investors are now waiting for the ISM services report later in the day and Friday’s employment report to confirm or quell recession worries.

The dollar has broadly gained in recent weeks as investors added long positions on expectations that other major economies, led by Europe, will under perform the United States.

Latest futures data show long dollar bets at a 3-month high.

While interest rate expectations from the US Federal Reserve haven’t changed dramatically this week, with money markets expecting policymakers to cut interest rates by 32 bps by the end of the year, traders are buying other currencies. Elsewhere, sterling was little moved despite a surprise contraction in the services sector as investors waited to receive a formal European Union response to Britain’s latest Brexit offer. The pound drifted 0.1% higher to $1.2315.