NEW YORK,. World stocks edged lower yesterday despite broad gains in Europe and rising oil prices as markets remained in the grip of trade turbulence.
A July 6 deadline is looming for Washington to impose tariffs on US$34 billion (RM137.3 billion) worth of Chinese goods that Beijing has vowed to match with tariffs on US products. President Donald Trump also threatened on Monday to “do something” if the United States was not better treated by the World Trade Organisation.
Prospects of a full-blown trade war and relentless yuan weakening — it has fallen 5 per cent in the past two weeks and is near 11-month lows — reportedly forced China into intervention via state-run banks.
“It is by far the biggest (yuan loss) I can remember. Prudence suggests it has to be matched across South-east Asia because of the competitive implications,” said Bank of New York Mellon strategist Neil Mellor. “It generates a degree of instability in the market simply by virtue of its scale.”
Among equity markets, Hong Kong dived as much as 3.3 per cent to nine-month lows, hit also by US curbs on China Mobile. Shanghai’s bourse hit a two-year trough but closed higher as the yuan recovered.
The mood was more cheerful in Europe where a pan-European equity index rose 1 per cent, the euro firmed and bond yields climbed after German Chancellor Angela Merkel struck a migration deal with her Bavarian conservative coalition partners.
MSCI’s gauge of stocks across the globe shed 0.01 per cent.
In the United States, benchmark indices closed in the red after trading for much of the day in positive territory during a holiday-shortened session. The Dow Jones Industrial Average fell 132.36 points, or 0.54 per cent, to 24,174.82, the S&P 500 lost 13.49 points, or 0.49 per cent, to 2,713.22 and the Nasdaq Composite dropped 65.01 points, or 0.86 per cent, to 7,502.67.
Shares of Facebook Inc fell 2.3 per cent after the Washington Post reported a federal probe on a data breach linked to Cambridge Analytica had been broadened and would include more government agencies. That hit other technology shares as well.
“The big driver behind US resilience is that tech has been strong,” said Rory McPherson, head of investment strategy at asset manager Psigma. “Expectations are pretty high for the earnings season, with talk of 20 per cent earnings growth year-on-year.”
Energy stocks have been boosted by Brent crude’s rise past US$78 a barrel, McPherson noted. Europe’s tech and energy sectors rose 0.5 and 1 per cent respectively.
While US growth and company earnings seem unassailable, tit-for-tat tariffs from China and Europe may ultimately prove detrimental for American businesses and jobs.
US bond yields rose slightly amid the easier mood but concern about the trade row has helped push the gap between two- and 10-year yields to the narrowest since 2007.
“Basically (the flat curve) is saying the underlying growth in the US economy may not be as strong as the high short-term interest rates might warrant,” McPherson said.
The US dollar retreated 0.4 per cent against a basket of currencies and the easing tensions in Germany helped the euro to gain 0.2 per cent against the greenback.
Friday’s monthly payrolls data should show labour markets remain tight, keeping the US Federal Reserve’s policy tightening on track.
“Notwithstanding the trade war concerns, the broader picture is the US central bank still remains the most hawkish central bank among its peers and that should support the US dollar for now,” said Jane Foley, senior currency strategist at Rabobank.