Global sticks slip on US-China trade tensions

London – Global stocks slipped towards a recent two-month low on Tuesday, as US-China trade tensions drove investors to the relative shelter of gold, the yen and government debt.

Sterling was the big mover in currency markets, nearing a three-year low with British Prime Minister Boris Johnson set for a showdown with parliament over a no-deal Brexit.

With US markets shut on Monday, global markets took their cue from weak purchasing managers’ index survey data in Europe and China, which raised concerns the global economy was struggling on many fronts.

An index of global stocks slipped 0.2% on Tuesday, heading towards a two-month low hit in early August. An index of Asian stocks was down 0.7%.

In the trade war between Washington and Beijing, tensions have shown little sign of abating even though US President Donald Trump has said they would meet for talks this month.

“Since the trade dispute has become the driving force behind equity markets, we advise against adding significantly to equity exposure, particularly for those with an adequate strategic allocation,” Mark Haefele, chief investment officer at UBS Global Wealth Management said.

European stocks were on the back foot as investors locked in profits from a three-day streak that saw indices scale near one-month highs. An index of European stocks was down 0.3%.

Data hopes

The move away from equities boosted demand for government debt with yields on benchmark US treasury debt tumbling to towards a three-year low hit last week as investors also ramped up their bets the global economy is headed towards a recession.

Market watchers are hoping that US data will undermine some of those bearish bets on the global economy with surveys from the Institute for Supply Management (ISM) due later in the day while US payrolls data is due on Friday.

“The ISM … is going to be [a] particularly important market mover as those who have been buying bonds strongly, suggesting that the US is on course for recession, need to see some sort of justification,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

The yield on 10-year US treasuries fell two basis points to 1.482%, off a three-year low of 1.443% touched last week. The yield dropped more than 50 basis points last month, the biggest monthly drop since August 2011.

Keeping in line with a general mood of risk aversion, the yen gained 0.2% against the dollar while gold firmed towards more than a six-year high.

In the currency market, sterling slumped below $1.20 to a three-year low, as Johnson’s implicit ultimatum to lawmakers to back him on Brexit or face an election sent investors scrambling to dump British assets.

Oil prices were also dented by trade war concerns. US West Texas Intermediate (WTI) crude lost 0.47% to $54.84 a  barrel. International benchmark Brent futures dipped 0.05% to $58.63 a  barrel.

Reuters