Global shares slip on relentless US-China trade war

London — Global shares slipped on Thursday on growing signs that a trade dispute between the US and China is taking a toll on corporate earnings, with nerves spreading from Wall Street through Asia to European markets.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.2% to its lowest in nine days, while the Euro Stoxx 600 slipped 0.5% to its lowest in almost three weeks.

The earnings season, kicking off this week, brought bad signs as rail freight giant CSX, cut its revenue forecast as it warned of the impact of the US-China trade war, pushing down Wall Street indices on Wednesday.

In Europe, too, earnings were top of the agenda. Tech stocks led the slide as software firm SAP, Europe’s most valuable tech stock by market cap, reported poor results, also flagging the impact of the US-China trade war.

With nerves already on edge over when face-to-face talks between the US and China will resume, on Tuesday, US President Donald Trump maintained pressure on Beijing with a threat to put tariffs on another $325bn of Chinese goods.

Investors also cited a report that progress towards a US-China trade deal has stalled as the Trump administration works out how to address Beijing’s demands that it ease restrictions on Huawei Technologies.

“It’s still about the US and China dispute,” Christophe Barraud, chief economist and strategist at Market Securities said. “The trade war is creating uncertainty, weighing on capex, and clearly on trade flows. There are also problems with guidance, especially in the transportation sector. The fact is that one of the key stories of this year is global trade flows contraction.” 

Adding to the concerns over corporate health, Netflix shed US subscribers for the first time in eight years, sending shares falling more than 10% after the close of the market.

Compounding the trade concerns were concerning signs for the economy emerging from Japan to the US. Japan’s exports slumped yet again, falling 6.7% in June, while manufacturers’ confidence fell to a three-year low in July on the back of the trade tensions and slowing China growth.

US house-building fell in June for a second consecutive month, with building permits also falling, in a possible sign of more trouble ahead for the housing market.

The earnings anxiety and macro-data boosted demand for safe-haven assets, with yields on benchmark 10-year and 30-year US treasuries climbing overnight.

Eurozone government bond yields slipped back towards record lows on Thursday as economic indicators and corporate earnings deepened gloom on the global economy and increased bets on interest-rate cuts by major central banks.

Amid the gloomy outlook, bets for further monetary policy easing from major central banks have grown, with speculation on whether the US Federal Reserve will be cut by 25 basis points or 50 in July.

While markets take comfort from central banks’ willingness to support growth, said Sunil Krishnan, head of multi-asset funds at Aviva Investors, there were concerns for equity markets that have rallied on the back of stimulus expectations.

The weak start to the second quarter earnings season may spill over into the outlook for the remainder of the year, threatening equity markets’ stellar rally this year. “We are probably in the middle of analysts downgrading quarter three company earnings expectations,” he said.

Earlier in the day, MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.3%, with Tokyo’s benchmark Nikkei tumbling 2.0%, its biggest one-day fall in four months.

Pound to parity?

In currencies, the dollar edged lower against its rivals on the softer US treasury yields, with investors focusing their attention on the Fed’s meeting next week. Against a basket of its rivals, the dollar edged 0.1% lower to 97.195.

Sterling was a shade higher at $1.244, off its lowest since April 2017 touched on Wednesday amid growing risks of Britain leaving the EU in a no-deal Brexit.

Major British banks, such as HSBC, are already talking of the possibility of the pound breaching post-Brexit referendum lows of $1.149, with some asking whether the pound is headed for parity against both the dollar and the euro.

Oil prices were mixed, with US crude extending losses after data showed US stockpiles of petrol and other products rising sharply last week, suggesting weak demand. Brent crude futures were up 6c, or 0.1%, at $63.71 a barrel by 755am GMT. They fell 1.1% on Wednesday.

Reuters