Stock selloff snowballs as investors price in slowing economy
LONDON: Losses on global stocks snowballed yesterday, with Wall Street set to follow Europe and Asia lower as fresh signs emerged that the US-China trade spat was taking a deeper toll on world economic growth. Data from the world’s biggest economies-the United States, China, Japan and Germany-have all disappointed investors in recent days, and doubts are growing that Washington and Beijing will reach agreement before a 90-day trade ceasefire expires. Markets are also on edge after reports that the British parliament’s crucial vote on Prime Minister Theresa May’s Brexit deal will be delayed, sending sterling and UK stocks lower. “Another day, another reason to sell risk. Equity markets remain in a world of pain with everyone in search of a very elusive silver lining,” said Stephen Innes at brokerage OANDA
MSCI’s all-country index has spent four weeks in the red, despite intermittent rallies fuelled by hopes of trade war detente. The index slipped 0.5 percent, while a panEuropean index fell 0.7 percent by 1200 GMT. US equity futures were down 0.3 percent, suggesting more pressure on Wall Street later in the session.
Last week’s arrest of the chief financial officer of Chinese smartphone maker Huawei for extradition to the United States was seen as putting up another hurdle to the resolution of a trade war between the world’s two biggest economies. US trade representative Robert Lighthizer said Sunday there was a “hard deadline” to the 90-day trade ceasefire and without a successful end to talks by March 1, Washington would impose new tariffs on Chinese goods.
“The trade theme will preoccupy the markets through the 90-day truce period between the United States and China, waiting for any signs of concession between the parties,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.
Following weak trade and inflation data on the weekend, China also posted far weaker-than-expected November exports and imports, reinforcing expectations Beijing will roll out more stimulus to prevent the economy cooling too fast. However, the yuan sagged to a one-week low after the weak data.
“(The data) would suggest China woes go well beyond US tariffs, given that China trade surplus to the US was at a record level. One can only imagine the impact on China terms of trade if the US follows through with a 25 percent tariff,” Innes of OANDA said. Japan posted the worst contraction in over four years in the third quarter as uncertainty over global demand and trade saw companies slashing capital spending. MSCI’s index of Asian equities outside Japan earlier slid to near three-week lows, Shanghai shares retreated 0.8 percent and Japan’s Nikkei shed 2.1 percent. Emerging-market stocks lost 1.5 percent.
Asia’s data came after investors were spooked last week by below-forecast industrial output numbers in Germany and US jobs data showing employers hired fewer workers than expected in November.
The slowdown signs also have pummeled oil prices, which have slumped around 30 percent since early October. Brent futures fell 1.5 percent to $60.7 a barrel, reversing earlier modest gains triggered by a supply cut from OPEC and some non-affiliated producers.
Data and dollar
European investors were keeping their eyes on events in Britain and France. Sterling slumped to the lowest since June 2017 versus the dollar, after the BBC’s political editor quoted cabinet sources said May was pulling the vote, scheduled for today. Sterling slid half a percent to $1.2656 and extended losses versus the euro, trading down 0.7 percent at 90.18 pence - its weakest since earlySeptember.
Britain’s FTSE 250 equity index, sensitive to local economic developments tumbled 1 percent and investors scurried to buy British government bonds, with yields dropping five to seven basis points on the day.
“There is still room for short-term political risk premium to be priced into pound which is currently worth of 2 percent based on our models. The downside to sterling is hence very clear,” ING Bank analysts told clients. The dollar inched off two-week lows against a basket of currencies, including sterling. Last week, the dollar posted its worst performance since August after the lacklustre jobs data convinced many that US growth has peaked and the Federal Reserve will pause its rate tightening sooner than previously thought.
French assets also came under pressure, with hotel and retail stocks suffering the fallout of four weekends of antigovernment riots, which the finance minister said could curb economic growth by 0.1 percentage point. The yield premium investors demand to hold French bonds over German peers rose to the highest since May, before a 1900 GMT televised address by President Emmanuel Macron. Macron has been forced to row back on fuel tax increases and investors fear further concessions to placate protestors . —Reuters