European bourses shrug off Asian turbulence, take cue from US tech gains

Other Asian currencies weakened, especially those such as the Indonesian rupiah that are doubly exposed — to trade and oil prices approaching $80 a barrel.

On equity markets, Hong Kong dived as much as 3.3% at one point to nine-month lows, hit also by a US move to block China Mobile from offering services to the US market.

Shanghai’s bourse hit a two-year trough though both indexes inched higher towards the close as the yuan recovered. Japan’s Nikkei edged to a near three-month closing low.

The mood was more cheerful in Europe where a pan-European equity index rose 0.5%, the euro firmed marginally and bond yields rose after German Chancellor Angela Merkel struck the deal with her Bavarian conservative coalition partners.

“The agreement between Chancellor Merkel and German interior minister Horst Seehofer should see German political risk fade into the background as a downside risk for the euro in the near-term,” MUFG analysts told clients.

Equity futures for the US S&P 500 and Nasdaq composite index indicated a firmer session after Wall Street ended higher on Tuesday for the third day in a row.

Gains of about 1% in tech firms such as Microsoft and Apple offset concerns about trade and its impact on growth.

Tech shares have been relatively resilient to trade fears. The New York Stock Exchange’s index of 10 tech giants including China’s Alibaba has gained more than 30% this year. They are expected to deliver another set of robust quarterly earnings.

That helped MSCI’s world index to rise 0.2%, inching further off recent two-and-a-half-month lows.

Central banks and currencies

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 Treasury bond yields rose slightly amid the easier mood but concern about the trade row has pushed the gap between two- and 10-year yields to the narrowest since 2007.

“The recent intensification of global trade tensions implies the probability of trade conflict has risen to levels that could result in significant pain in financial markets and a sizable drop in output and employment,” Deutsche Bank wrote.

The dollar retreated 0.4% against a basket of currencies and the easing tension in Germany helped the euro to gain 0.2% against the greenback.

But those most exposed to trade such as the Australian dollar and emerging currencies remain under pressure — the Aussie, considered a liquid proxy for China-related risk, was close to one-and-a-half-year lows against the greenback.

The Reserve Bank of Australia (RBA) kept rates at a record low 1.5% on Tuesday and showed no hint of raising them soon. Its governor cited “the direction of international trade policy in the US” as an uncertainty.

The Turkish lira, seen as an emerging markets weak link, fell more than 1% after data showed June inflation accelerating to 14-year highs, hit by oil prices and the pass-through from currency weakness.

Reuters