Stocks stumble as trade jitters send yuan to 10-year low

Euro struggled near a 10-week low as dollar climbed towards a 2 1/2-month high

European shares slipped back into the red and China’s yuan hit a 10-year low yesterday, as the prospect of another escalation in the US-Sino trade war compounded the recent gloom in global markets.

Asia had made modest gains overnight, thanks to hints of economic stimulus from Beijing, but Europe couldn’t keep up the momentum as some disappointing company results and consumer spending data from France triggered a 0.4 per cent drop.

It came on top of reports that Washington will impose tariffs on all Chinese imports by the end of the year without progress at next month’s meeting of Presidents Donald Trump and Xi Jinping.

The euro struggled near a 10week low as the dollar climbed towards a 2 1/2-month high against a basket of the world’s top six currencies. It was the 10-year low for China’s yuan in Asian trading that grabbed most attention, though, as it weakened to 6.9696 per dollar, stirring speculation over whether Beijing will tolerate a slide beyond 7 per dollar.

“We don’t see the trade war being resolved anytime soon,” said Rabobank’s senior macro strategist Teeuwe Mevissen.

“And it comes at a time when we see all the sentiment indicators in the Eurozone but also in the US, too, cooling down.”

There was more negative news out of Italy, the other major concern for Europe at the moment, as its coalition government faces off with the European Commission over spending.

Data showed the Italian economy had ground to a halt in the third quarter as both domestic demand and trade flows failed to spur any growth.

The flat reading was the weakest since the fourth quarter of 2014 and renewed the pressure on Italy’s government debt in the bond markets.

Italy’s 10-year government bond yield was up 2.5 basis points (bps) at 3.36 per cent, having been as low as 3.32 per cent earlier in the session.

The closely watched spread over German government debt was back up to 300 bps. Asian shares rose in a choppy overnight session as China made a fresh attempt to stabilise its stock markets. Beijing’s securities regulator said it would encourage share buybacks and mergers and acquisitions by listed firms and would enhance market liquidity.

Mainland China’s benchmark Shanghai Composite and the blue-chip CSI 300 gained to 1.0 per cent and 1.1 per cent, respectively, having fallen in early trading.

Japan’s Nikkei average also erased early losses and rose 1.5 per cent as traders went shopping for bargains among beatendown stocks. MSCI’s broadest index of Asia-Pacific shares has lost 12 per cent this month and is on track for its biggest October decline since 2008, during the global financial crisis.