Global stocks feel weight of renewed US-China trade wars

London — Fresh trade-war fears weighed on global stocks on Wednesday ahead of a US Federal Reserve meeting with the dollar holding firm and Britain’s pound subdued amid rising fears of no-deal Brexit.

Combative warnings from US President Donald Trump cast a shadow over China-US trade talks, which concluded in Shanghai on Wednesday. Beijing attributed the lack of progress to Washington’s flip-flopping.

The fresh trade tensions come ahead a US Fed meeting which is expected to see interest rates reduced by 25 basis points (bps) in its first rate cut in more than a decade. Yet the focus is on whether it will leave the door open for further easing to shore up the world’s largest economy in the face of slowing global growth and the fallout from trade conflicts.

MSCI’s broadest global stock index and Europe’s pan regional Stoxx 600 slipped 0.1%, the latter flirting with a fresh one-month low as worries over trade wars and Brexit offset encouraging signals from the earnings season. London’s FTSE fell 0.3% while Frankfurt stocks gained 0.2% and Paris was treading water.

In focus were banks, with strong results from French lender BNP Paribas and Switzerland’s Credit Suisse countering a poor report from British bank Lloyds.

“Trade talks have finished without an agreement,” said Justin Onuekwusi, fund manager at Legal & General Investment Management. “Of course, it doesn’t help that almost as a prelude to the conversation you get tweets that are quite antagonistic,” he said, referring to a tweet by Trump warning China against waiting out his current presidential term before finalising a trade deal.

In Asia, shares excluding Japan fell to a six-week low with China mainland stocks down nearly 1% and Hong Kong down 1.3%. Japan’s Nikkei declined by 0.7%. China data showing factory activity shrank for the third month in a row in July added to the sombre mood.

However, US futures pointed to main indices opening higher. On Tuesday, major Wall Street stock averages ended slightly lower with the S&P 500 losing 0.26%.

After the closing bell in the US, Apple shares rose 4.2% as its April-June earnings beat estimates and CEO Tim Cook cited “marked improvement in Greater China”.

Expectations for US Fed easing have helped lift the S&P 500 index 2.4% so far this month. Fed funds rate futures are now fully pricing in a 25bps rate cut on Wednesday and another 25bps reduction by September.

“Exactly what happens today is far from a foregone conclusion,” said Deutsche Bank’s Jim Reid in a note to clients. “Although the Fed has given no real encouragement to the notion of a 50bps cut, it’s worth noting that the last time the Fed began a series of rate cuts, in September 2007, their opening move was a 50bps cut, and a similar 50bps cut happened when the Fed began cutting in January 2001.”

On Tuesday, Trump reiterated his call for the Fed to make a large interest rate cut, saying he was disappointed in the US central bank and that it had put him at a disadvantage by not acting sooner.

Currencies

In currency markets, the dollar index traded flat at 98.064 after pulling back from a two-month high of 98.206 touched on Tuesday.

The dollar was also steady against the yen and the euro, with the former undermined on Tuesday by the Bank of Japan’s decision to refrain from expanding stimulus though it committed to doing so “without hesitation” if required.

Meanwhile, the pound hovered near a 28-month low hit the previous day on growing concerns about a disorderly Brexit. Sterling traded at $1.2160, not far from $1.2120 marked on Tuesday. It has fallen 4.2% so far this month, on course to log its worst monthly performance since October 2016.

In commodity markets, crude oil futures rose for the fifth straight day, buoyed by a bigger-than-expected drop in US inventories. US West Texas Intermediate (WTI) crude gained 28c to $58.34 a barrel while Brent crude futures added 48c to $65.2.

Three-month copper on the London Metal Exchange was almost unchanged at $5,950 a tonne.

Reuters