Asian shares fall as Europe enters the US’s trade crosshairs

Tokyo — Asian shares stepped back from eight-month highs on Wednesday as the IMF lowered its global growth outlook and as tensions over tariffs between the US and Europe escalated.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.1%, a day after it hit eight-month highs while Japan’s Nikkei lost 0.9%. On Wall Street, the S&P 500 gave up 0.61% and the Nasdaq Composite declined 0.56%.

MSCI’s broadest gauge of the world’s stock markets dipped 0.1% on Wednesday from Tuesday’s six-month peak but it is still almost up 19% from its low marked in December, which was its lowest level in almost two years.

Although earnings forecasts have been pegged back recently, share markets have been propped up by hopes of a trade deal between Washington and Beijing and optimism that the Chinese economy may be bottoming out on policy support.

“The gap between the strength in global shares and sluggishness in the real economy has been widening,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

That view was reinforced on Tuesday when the IMF cut its forecast for world economic growth in 2019, saying the global economy is slowing more than expected and that a sharp downturn could require world leaders to co-ordinate stimulus measures.

US data overnight added to the cautious mood, with job openings dropping to an 11-month low in February and raising doubts about the strength of the US labour market, which has so far been one of the few bright spots in the economy.

Global trade anxiety was another sore point for risk asset markets.

US President Donald Trump threatened to impose tariffs on $11bn worth of EU products, heightening tensions over a long-running transatlantic aircraft subsidy dispute.

The move came as markets remain on edge as negotiators try to hammer out trade deals with China and neighbours Mexico and Canada.

Global debt yields held mostly steady, with the 10-year US Treasuries yield at 2.501%, off its 15-month low of 2.340% touched late in March.

In a possible sign of investors’ strong appetite for bonds, Saudi Aramco is set to raise $12bn with its first international bond issue after receiving more than $100bn in orders.

It was a record breaking vote of market confidence for the oil giant despite concerns sparked after the murder of Saudi journalist Jamal Khashoggi in October.

Major currencies were little moved with an immediate focus on the European leaders’ summit and the European Central Bank’s policy meeting.

EU leaders are likely to grant British Prime Minister Theresa May a second delay to Brexit but they could demand she accepts a much longer extension as France pushed for conditions to limit Britain’s ability to undermine the bloc.

The euro held firm at $1.1266, extending its slow recovery from $1.1183 touched on April 2. It is up 0.43% so far this week. The British pound perked at $1.3059, little changed on the day.

The dollar slipped to 111.14 yen, having fallen 0.5% so far this week.

Oil prices held firm after hitting five-month highs the previous day as fighting in Libya raised supply disruption concerns.

US crude futures stood at $64.23 per barrel, up 0.3% in early Asian trade after rallying to a five-month high of $64.79 on Tuesday.

Brent crude futures changed hands at $70.83 per barrel, not far from Tuesday’s five-month peak of $71.34. 

Reuters