Equities sink as China ‘slowdown’ deepens, German economy weak

Risk-off move boosts yen versus dollar

LONDON, Nov 14, (RTRS): World stocks nudged down on Thursday as Chinese economic data slowed in October and Germany only narrowly avoided a recession in the third quarter, adding to worries about the global growth fallout from the US-China trade war.

MSCI’S All-Country World index, which tracks shares in 47 countries, was down 0.14% after the start of trading in Europe.

European shares fell after data showing the German economy grew just 0.1% in the third quarter, avoiding edging into a mild contraction thanks to consumer spending but remaining weak nevertheless.

The pan-European STOXX 600 index was flat by midday in London, while Germany’s DAX was down 0.2%.

“Obviously it’s better than expected, but actually I would argue is that it’s a hollow victory because in effect it makes a fiscal response less likely,” said Michael Hewson, chief markets analyst at CMC Markets in London, referring to the German data.

“I think if they’d gone into a technical recession, the pressure to loosen the purse strings, so to speak, would have been much much greater.”

Ten-year bond yields across the euro area fell around 2 basis points each. Germany, French and Dutch yields reached one-week lows,.

US stock futures were down 0.1%, pointing to a weaker opening on Wall Street.

In Asia, stocks fell after soft economic data in China and Japan showed the trade war between Beijing and Washington was hitting growth in some of the world’s biggest economies.

MSCI’s broadest index of AsiaPacific shares outside Japan fell 0.3%. Japan’s Nikkei stock index fell further, dropping 0.8%.

Shanghai blue chips were up 0.15%, however, supported by expectations that the gloomy figures would add to the case for stimulus.

China’s factory output growth slowed significantly more than expected in October, as weakness in global and domestic demand and the drawnout Sino-US trade war weighed on broad segments of the world’s secondlargest economy.

Fixed asset investment, a key driver of economic growth, rose just 5.2% from January to October, against expected growth of 5.4% and the weakest pace since Reuters’ records began in 1996.

China and the United States are holding in-depth discussions on a “phase one” trade agreement, and cancelling tariffs is an important condition to reach such a deal, the Chinese commerce ministry said on Thursday.

China’s industrial production growth slowed sharply in October, with the 4.7% year-on-year rise well below forecasts for 5.4%. Investment growth hit a record low and retail sales also missed expectations.

The weak figures also come as market confidence about a resolution being reached weakens, with a new Reuters poll showing most economists do not expect Washington and Beijing to strike a permanent truce over the coming year.

Trump offered no update on the progress of negotiations in a policy speech on Tuesday. The Wall Street Journal reported on Wednesday that talks had snagged on farm purchases.

US futures were down 0.14%, following a record-high close on the S&P 500 on Wednesday.

Worries about spiralling violence as anti-government protests intensify in Hong Kong have also soured investor sentiment.

Protesters paralysed parts of Hong Kong for a fourth day, forcing school closures and blocking highways and other transport links in a marked escalation of unrest in the financial hub.

Hong Kong’s Hang Seng fell 0.8% to a fresh one-month low.

In currency markets, safe havens such as the Japanese yen and Swiss franc gained.

The yen was quoted at 108.67 per dollar, close to a one-week high. The Swiss franc traded at 0.9889 versus the greenback, also near its highest in more than a week.

“Increasing signs of unrest in Hong Kong and Latin America coupled with the uncertainty around the trade talks is keeping the risk-off sentiment well and alive in FX markets,” said Lee Hardman, a London-based currency strategist at MUFG.

The dollar was flat against a basket of peers.

The Australian dollar skidded to a one-month low after a worryingly weak reading on employment re-ignited speculation about another cut in interest rates.

US

The S&P 500 and the Dow Jones Industrial Average were unchanged on Thursday, but still hovered near record levels as a dour forecast from Cisco offset gains in Walmart after its strong outlook.

Cisco Systems Inc fell 7.6% after the network gear maker said currentquarter revenue would drop 3% to 5% amid declining global spending on its routers and switches, some of which are made in China.

However, Walmart Inc jumped 1.8% as the world’s biggest retailer raised its annual earnings outlook. Its results pointed to strong domestic consumer demand, ahead of a crucial retail sales report on Friday.

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Eight of the 11 major S&P sectors were higher, with the consumer discretionary sector providing the biggest boost. The tech index was 0.20% lower, as Cisco shares weighed.

The stock indexes had an uneventful open as weak data from China and Germany rekindled worries of a global slowdown due to a prolonged US-China trade war.

Federal Reserve Chair Jerome Powell is speaking before the House Budget Committee on Thursday. He made comments about a “sustained expansion” ahead for the US economy, which supported stock markets in the previous session.

At 10:23 am ET the Dow Jones Industrial Average was up 1.98 points, or 0.01%, at 27,785.57, the S&P 500 rose 2.08 points, or 0.07%, at 3,096.12 and the Nasdaq Composite was down 5.99 points, or 0.07%, at 8,476.11.

Viacom Inc gained 2.7% after the MTV-owner beat quarterly profit estimates, helped by a rise in domestic advertising revenue.

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UK

London’s FTSE 100 edged lower on Thursday, as a 6% drop in private equity company 3i and a handful of stocks trading ex-dividend overshadowed an earnings-driven surge in luxury brand Burberry.

The main index shed 0.1% with 3i Group hitting a five-month low after its first-half report and heavyweight components Sainsbury, Shell and GSK weighing as they traded without dividend entitlement.

Luxury brand Burberry, however, surged 7% as the popularity of designer Riccardo Tisci’s collections boosted quarterly sales and offset declines in Hong Kong where trading was hit by ongoing protests.

The mid-cap FTSE 250 was flat, though transport operator FirstGroup slid 14.5%, on track for its worst day since May 2018 after a bigger firsthalf loss due to a charge related to its Greyhound bus line business.

Europe

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European shares dipped on Thursday, as a warning from German carmaker Daimler and lackluster economic data from Asia and Europe countered a handful of positive corporate updates.

By 0929 GMT, the pan-European STOXX 600 index slipped 0.1%, with German shares dropping 0.2%.

Data showed Germany’s economy narrowly avoided slipping into recession in the third quarter but growth remained close to zero and that in central and eastern European economies that rely heavily on its demand are crumbling.

Daimler dropped about 3% after the carmaker said tougher emissions rules would hit earnings in 2020 and 2021, forcing it to seek more than 1 billion euros on staffing costs at MercedesBenz by the end of 2022.

Daimler’s warning spurred a 1% fall in the European auto index, leading declines among the major sectors.

Other numbers on Thursday showed China’s factory output growth slowed significantly more than expected in October and Japan’s economy ground to a near standstill.

Asia

In Asia, Tokyo’s Nikkei 225 lost 0.8% to 23,141.55 while the Shanghai Composite Index gained 0.2% to 2,908.87. Hong Kong’s Hang Seng dropped 0.9% to 26,323.69.

Seoul’s Kospi advanced 0.8% to 2,139.23 and Sydney’s S&P-ASX 200 gained 0.6% to 6,735.10. India’s Sensex added 0.4% to 40,257.81. Taiwan and Southeast Asian markets declined while New Zealand advanced.

Oil

Oil rose on Thursday after industry data showed a surprise drop in US crude inventories, while comments from OPEC about lower-than-expected US shale production in 2020 also provided some support.

Prices were capped by mixed signs for oil demand in China, the world’s biggest crude importer. Industrial output rose more slowly than expected in October, but oil refinery throughput hit the second-highest level on record.

Brent futures were up 65 cents, or 1.04%, at $63.02 per barrel at 1442 GMT, while West Texas Intermediate crude gained 47 cents, or 0.82%, to $57.59.

The secretary-general of the Organization of the Petroleum Exporting Countries, Mohammad Barkindo, said on Wednesday that there would likely be downward revisions of supply going into 2020, especially from US shale.

Barkindo said it was too early to say whether further output cuts would be needed.

Currencies

The US dollar fell against the Japanese yen on Thursday morning, though it was steady against the euro, on diminished risk appetite amid ongoing political turmoil in Hong Kong and weak data from Asia and Europe.

The Japanese yen and Swiss franc, both safe-haven assets, were up 0.23% and 0.21% against the dollar in early trade. That risk-off move also bolstered US Treasury bond prices and hit the Dow Jones and Nasdaq indexes, all common risk-off market reactions.

The dollar, however, was higher against the euro in mid-morning trade. The dollar generally gains toward the end of the year as investors wind down trading, and demand has been strengthened this year by higher interest rates and stronger economic growth in the United States.