Global stocks dip as uncertainty reigns; pound extends its losses

Wall St closed on US national day of mourning

LONDON, Dec 5, (Agencies): European markets slid Wednesday on the back of sharp Asian losses and overnight on Wall Street, as concern grew over the US economic outlook, dealers said.

With Wall Street closed on a US national day of mourning for the funeral of former president George H.W. Bush, European stocks tanked as investors faced a raft of problems from trade to Brexit that erased the positive start to the week when sharp gains were made after the US and China appeared ready to dial down their trade war.

After US President Donald Trump and Chinese counterpart Xi Jinping moved to a truce in their trade spat, Trump tweeted that he saw “very strong signals being sent by China,” after Beijing acknowledged a 90-day deadline to reach a tariffs agreement.

For Capital Economics, the two leaders “seem to have different understandings of what they have agreed. But the deal has, at least, paused the escalation of the dispute”.

European markets were not cheered, however, with London, Frankfurt and Paris all off around one percent some two hours from the close as the uncertainty from Britain’s ongoing Brexit saga continued unabated.

“European stock markets are firmly in the red following the major losses incurred on Wall Street,” said CMC Markets analyst David Madden.

“From a political and economic point of view, not much has changed, but investor confidence has been shaken in light of the move in the US yesterday, and that is playing on investors’ minds.”

Wall Street had been pummelled Tuesday, the Dow losing 3.1 percent amid worries over slowing US growth and the trade spat with China.

While Trump hailed the deal at first, on Tuesday he warned on Twitter “remember, I am a Tariff Man”, adding: “When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.”.

In another tweet he left open the door to an extension of the agreement’s 90day timeline to end the row.

China’s commerce ministry Wednesday called the pact “successful” and said it “will start with the implementation of the specific matters in which consensus has been reached, the sooner the better.”

Concerns are also mounting about the US economy as short-term and longterm money market rates moved closer together, stoking fears of “inversion”.

If the process continues and shortterm rates overtake long-term, it is often taken as a clear precursor to a recession.

The pound continued to struggle on concerns Britain could leave the EU without a deal, which most observers fear could hammer the economy.

Sterling had briefly hit a 17-monthlow at $1.2659 after Prime Minister Theresa May suffered a series of stunning defeats in parliament that highlighted the fight she has in passing her Brexit deal.

If she loses there are expectations she will face a no-confidence vote and a defeat that could force early elections, leaving the country in chaos.

“May’s triple defeats in parliament are highly discouraging and may intensify fears over her Brexit deal being rejected next week,” said FXTM analyst Lukman Otunuga. Separately, oil prices extended losses after another jump in US inventories and as Saudi Arabia raised questions about the chances of an output cut at a meeting of OPEC and non-OPEC members this week.

Saudi Energy Minister Khalid AlFalih said it was “premature to say what will happen” in Vienna, days after Russian President Vladimir Putin had said the pair had agreed to maintain a production cap.

Europe

Worries about US bond markets signalling an impending recession and a still rumbling trade war between the world’s two biggest economies sent European shares sinking further on Wednesday after a 3 percent drop on Wall Street.

The pan-European STOXX 600 was down 1.2 percent by 0830 GMT, hitting its lowest level since Nov 23, with Germany’s DAX, France’s CAC 40, and Britain’s FTSE 100 all falling 1.3 percent.

Financials were the biggest drag on European shares as investors dumped sectors highly sensitive to economic growth. Europe’s bank index fell 1.7 percent, in line with tech after the highly valued US tech sector sold off.

German carmakers Daimler, Volkswagen, and BMW fell 0.5 to 0.8 percent, outperforming the DAX as investors digested what seemed a relatively positive outcome from auto executives’ meeting at the White House.

Shares in valve manufacturers Rotork and Weir, which supply the oil industry, tumbled 3 to 5 percent after US energy services firm Schlumberger gave a warning on Tuesday, saying a drop in fracking activity would hit its North America revenues. M&A news was also a driver. Shares in Shire jumped 4 percent at the open, then trimming gains to trade up 2 percent, after shareholders of Japan’s Takeda approved the takeover of the London-listed pharmaceutical firm.

Broker notes hit some stocks. Hargreaves Lansdown fell 5.4 percent after Morgan Stanley cut its rating to underweight.

Asia

Asian markets fell Wednesday following a rout on Wall Street, as investors were bombarded by a “perfect storm” of problems from trade to Brexit that erased the positivity seen at the start of the week.

The glum mood overshadowed hints from Donald Trump at more time to resolve the China-US trade row, as well as soothing comments from China about their desire to push on with a weekend agreement between the world’s top economies.

Trading floors are awash with uncertainty over the agreement Trump hammered out with Xi Jinping to much fanfare – and an initial market rally – in Buenos Aires, with little clarity emerging and the US president shifting his tone.

While he hailed the deal at first, on Tuesday he warned on Twitter “remember, I am a Tariff Man”, adding “When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so”.

In Asia Hong Kong plunged 1.6 percent, Shanghai ended 0.6 percent lower and Tokyo was down 0.5 percent.

Singapore shed 0.8 percent and Seoul was 0.6 percent off, while Wellington dived one percent. Sydney slipped 0.8 percent after data showed the Australian economy grew at a slower pace than expected in July-September. The Australian dollar dived more than one percent.

Oil

Oil recouped some of its early losses on Wednesday, echoing a modest recovery in global equities, but concern about the outlook for global growth and evidence of yet more crude supply kept gains in check.

The Organisation of the Petroleum Exporting Countries, with partner countries such as Russia, meets on Thursday to discuss a potential cut in crude output.

In the face of a growing supply overhang, it will be keen to avert the kind of build-up in global oil inventories that sent prices on a 19-month long decline starting in late 2014.

After reaching a truce on trade over the weekend, the United States and China appeared once again to be at loggerheads after President Donald Trump threatened “major tariffs” on Chinese imports if the two failed to reach an effective deal.

Stock markets tumbled, taking cyclical assets such as oil with them, as the renewed tension rekindled fears of a global recession. Those concerns were reflected by a sharp drop in longer-term US Treasury yields.

Brent crude futures were down 22 cents on the day at $61.86 a barrel by 1312 GMT, but above a session low of $60.80, while US futures had eased 6 cents to $53.19. The oil price rallied by nearly 10 percent over Monday’s and Tuesday’s sessions, but has now retraced half of those gains.

“Oil sentiment is very fragile given clear event risk at play,” Harry Tchilinguirian, head of commodity strategy at BNP Paribas told the Reuters Global Oil Forum.

“The optimism that emerged following the G20 summit with some progress in US/China trade relations and the announcements of producer cooperation ... gave way very quickly.”

Saudi Arabia produced a record 11.3 million barrels per day (bpd) of crude in November, according to a source familiar with the matter. That marks a rise from October’s 10.65 million bpd, which, if confirmed, would mark the second-largest monthly increase since Reuters records began in 1997.

“OPEC’s will-they-or-won’t-they antics are keeping market players on the edge of their seats ... there is a general consensus that the Saudis will have their work cut out to get Russia to significantly trim supply,” PVM Oil Associates said in a daily note.

An eleventh consecutive weekly build in US crude inventories, the world’s largest and most visible, added to the pressure on the prices.

Official US government oil production and inventory data is due later on Thursday, delayed by one day. A Reuters survey forecast a decline of 900,000 barrels.

Asian gasoline refining margins have fallen to their lowest in seven years, as have European margins, meaning that processing it has become a loss-making business, a worry for both oil investors and producers

Currencies

The dollar steadied on Wednesday, as the boost to the euro and the yen from worries about a possible US recession following an inversion in part of the US Treasury yield curve faded.

The greenback rose 0.32 percent against the Japanese yen and the euro gave up all its early gains to trade down 0.04 percent against the dollar.

The US currency fell broadly earlier this week after a thaw in trade tensions between Washington and Beijing sapped demand for the safe-haven greenback. The currency also came under pressure after the US bond market sent worrisome signs about economic growth.

The difference between short-dated and long-dated US Treasury yields narrowed on Tuesday as the inversion of the yield curve spread between more maturities, prompted by worries about a slowdown in US economic growth.

Still, lingering uncertainty regarding China and the United States’ ability to resolve their trade war provided some support to the greenback.

On Tuesday, the futures market implied traders expect the US central bank to raise interest rates at its next policy meeting, on Dec 18-19, but they have scaled back their expectations of two rate hikes in 2019 to less than 10 percent, down from 59 percent a month ago.

The euro, which initially rose following a Reuters report that European Central Bank policymakers are exploring ways to withdraw stimulus in 2019, soon gave up those gains.

Businesses across Europe hit the brakes last month as a manufacturing slowdown in the eurozone spread to its dominant service industry, while Brexit uncertainty hammered British companies, surveys showed.

The Australian dollar slumped 0.93 percent against the greenback as disappointing economic data further dimmed the chance of a rise in rates.