European shares hold firm as Asian stocks fall and the dollar rises

London — The dollar rose to a one-week high on Thursday and stocks edged lower after signs that the US Federal Reserve will keep raising interest rates throughout 2019 undermined a bounce in world markets.

China’s stock markets were hit hard — its benchmark stock index fell to four-year lows — in a gloomy session for Asian equities and for the yuan which approached a two-month low. China’s premier warned of risks to the economy from an escalating tariff war with the US.

European shares, however, largely shrugged off the disappointment in Asia. London’s FTSE 100 traded 0.1% higher and Frankfurt’s DAX 30 and Paris’s CAC 40 both rose 0.3%. A pan-European equity index rose 0.4%.

Minutes of the Fed’s September 25-26 meeting showed that every Fed policymaker backed raising interest rates last month and also generally agreed borrowing costs were set to rise further. This reinforces expectations that US yields will rise further despite US President Donald Trump’s view that the Fed is tightening too much.

“Corporates have done incredibly well but it’s clear we are going into monetary tightening in the US and that makes people worried about global debt having gone up so much in recent years,” said Peter Lowman, chief investment officer at Investment Quorum, a UK wealth manager.

At a time of simmering trade-war tensions “people are, perhaps, taking chips off table and maybe going into cash and short-dated bonds,” he said. Overall, third-quarter earnings for S&P 500 companies are seen growing 21.8%, according to Refinitiv.

Dollar bounces

The dollar bounced on Thursday. Against a basket of its rivals, the dollar gained for a third consecutive day, up 0.2% at 95.78. That checked emerging-market gains. “The last thing emerging markets, or the US yield curve or equities want is a reminder that US rates are going to keep going up,” Rabobank analysts told clients.

The euro changed hands at $1.1518, holding steady against the greenback, after losing 0.65% on Wednesday. The euro has lost just under 3% of its value against the dollar over the last three weeks. Major currencies have shown limited reaction after the US government, late on Wednesday, refrained from naming China a currency manipulator.

In its semi-annual currency report, the US treasury department said a recent depreciation of China’s yuan currency will likely exacerbate the US trade deficit, but US officials found Beijing appeared to be doing little to directly intervene in the currency’s value.

“The US refrained from labeling China a currency manipulator, but dialed up the rhetoric against its currency practices,” said Sue Trinh, Head of Asia FX Strategy, RBC Capital Markets.

The yuan fell 0.2% to 6.9424 to the dollar in the offshore trade, not far off a one-and-a-half-year low of 6.9587 touched in August.

In Europe, an EU leaders’ summit with British Prime Minister Theresa May yielded little obvious progress on a Brexit deal being negotiated between Britain and the bloc.

Sterling did, however, turn positive on Thursday after May confirmed she was open to discussing an extension of the transition period after Brexit.

Oil steadied on Thursday as support from ongoing tensions over the disappearance of a prominent Saudi journalist offset a big drop overnight due to a jump in US crude stockpiles. US West Texas Intermediate (WTI) crude for October delivery was up 1c at $69.56 a barrel by 8.40am GMT, after falling 3% in the previous session to settle below $70 for the first time in a month.

Reuters