Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

Flare-up of Sino-U.S. tensions over Hong Kong knocks world shares off 22-month high

Published 11/20/2019, 04:06 AM
Flare-up of Sino-U.S. tensions over Hong Kong knocks world shares off 22-month high
JP225
-
CBKG
-
HD
-
LCO
-
ESH25
-
CL
-
DE10YT=RR
-
US10YT=X
-
MIAPJ0000PUS
-
CSI300
-
MIWD00000PUS
-
DXY
-

By Sujata Rao

LONDON (Reuters) - World stocks were knocked off 22-month highs on Wednesday as a renewed flare-up in Sino-U.S. tensions and the creeping return of U.S. recession fears fueled a bid for bonds and other "safe" assets such as gold.

European equities tumbled half a percent at the open, edging further off recent four-year highs hit when it had appeared Washington and Beijing were about to agree the first phase of a trade deal. Wall Street futures were marked lower while oil prices suffered their biggest daily loss in seven weeks.

The mood in markets soured after the U.S. Senate angered China by passing a bill requiring annual certification of Hong Kong's autonomy and warning Beijing against violently suppressing protesters. China demanded the United States stop interfering in its internal affairs and said it would retaliate.

U.S. President Donald Trump also threatened to up tariffs on Chinese goods if a trade deal is not reached soon.

"Markets have taken a bit of a wobble due to the talk about Hong Kong, but they had rallied a lot in recent weeks on expectations of a (trade) deal," said Salman Ahmed, chief investment strategist at Lombard Odier.

Ahmed said both sides needed a deal to be signed -- Trump cannot afford a recession because of his re-election bid next year, while China's economy is slowing markedly.

"I think we are looking at a short-term setback rather than a major issue that would derail the process. The bill still has to be signed into law by Trump so there's a high probability he will use it as leverage against China."

MSCI's index of Asia-Pacific shares ex-Japan (MIAPJ0000PUS) tumbled 0.7%, Japan's Nikkei (N225) fell 0.8% and Shanghai blue chips (CSI300) lost 1%. MSCI's global index (MIWD00000PUS) slipped 0.3%, ending a three-day winning streak.

Wall Street was tipped for a weaker start with futures (ESc1) down 0.2%.

U.S. shares closed just below record highs on Tuesday, however, and world stocks remain just 0.5% off all-time peaks hit last year.

"It was noticeable that fixed income markets rallied despite equity markets being stable, suggestive of a market that remains cautious about the growth outlook," ANZ told clients.

U.S. 10-year Treasury yields, which have fallen in six out of the past seven sessions, slipped 5 basis points to 1.735%, a 2-1/2 -week low (US10YT=RR).

German bonds fell for the third straight day to touch a 2-1/2 week low (DE10YT=RR), shrugging off European Central Bank Chief Economist Philip Lane's comment that the euro zone economy would not fall into a recession.

"It's all about sentiment on trade ... We have this classical risk-off trade taking place again," Rainer Guntermann, a rates strategist at Commerzbank (DE:CBKG), said.

THE R WORD

Moves on commodity prices and bond markets imply fears of economic recession may be creeping back.

Japan's October exports fanned those fears further, tumbling at their quickest rate in three years, with shipments to China and the United States suffering big falls.

U.S. crude stocks rose far more than expected, the American Petroleum Institute said, driving Brent crude (LCOc1) into a 2.6% slide. Brent fell another half percent, inching towards the $60 mark last breached three weeks ago.

A marked flattening of the curve -- the gap between two-year and 10-year yields is at its narrowest in more than two weeks -- also hints at a return of recession fears. The curve inverted earlier this year, returning to normal only after three U.S. interest rate cuts.

But Federal Reserve officials have hinted there will be no further easing for now, a message the U.S. central bank may reiterate later in the day when it releases minutes from its last meeting. Markets are now pricing in just a 0.8% chance of a December rate cut .

Dour forecasts from retailers Home Depot (NYSE:HD) and Kohl's also fueled worries about U.S. consumer spending, which has so far been extremely robust, in contrast to manufacturing.

"We've had a bit of topping out of the U.S. consumer in the past couple of months, possibly we are seeing some catch up between consumer and manufacturing sectors," Lombard Odier's Ahmed said.

On currencies, the dollar nudged lower versus the yen to 108.4 but firmed 0.13% versus a basket of currencies (DXY). Gold rose 0.4% .

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.