World shares slip as China ramps up war of words

London — World share markets suffered a fresh bout of risk aversion on Friday after tough words on trade from China, while bets on a new pro-Brexit leader in Britain whipped the pound towards its worst week since October.

Europe’s bourses slipped 0.6% early on that seemed a minor blip after what had happened in Asia.

Shanghai stocks finished 2.5% in the red and the yuan hit its weakest in nearly five months amid growing fallout from US President Donald Trump’s move to block China’s Huawei Technologies from buying vital American technology.

On Friday, the Communist Party’s People’s Daily used a front page commentary to evoke the patriotic spirit of past wars, saying the trade war would never bring China down.

In terms of how the trade conflict plays out, “the next fortnight will be very, very important,” UniCredit strategist Kiran Kowshik said. “Chinese counter-tariffs are due on June 1 and if those get effected, I think markets will price in the risk of the US imposing its additional $300bn of tariffs ahead of the G20 meeting [near the end of June].”

The drop in the yuan saw it ease past 6.9400 per dollar in the offshore market for the first time since November 2018. Its slide has been steepening in recent days. Sources in China told Reuters the central bank would intervene to ensure it did not weaken past 7.00 to the dollar in the near term.

While breaking 7.00 could reduce some of the effects of US tariff increases, it could hit confidence and trigger fund outflows, one of the sources said.

MSCI’s broadest index of Asia-Pacific shares outside Japan was at 15-week lows and down 2.6% for the week at the end of trading. Japan’s Nikkei did manage to bounce 0.9%, while the main Australian index climbed to an 11-year peak as higher commodity prices boosted miners.

In Europe, Germany’s exporter-heavy DAX 30 fell the most, automotive stocks lost as much as 1.6% and E-Mini futures for the S&P 500 shed 0.35% ahead of Wall Street trading.

Sentiment had been briefly soothed on Thursday by better US economic news, with housing starts surprisingly strong and a welcome pickup in the Philadelphia Federal Reserve’s manufacturing survey.

Upbeat results from Walmart burnished the outlook for retail spending, though the chain also warned that tariffs would raise prices for US consumers.

As the earnings season winds down, of the 457 S&P 500 companies reporting about 75% have beaten profit expectations, according to Refinitiv data.

May counts down to June

The chillier trade winds helped US treasuries, with the 10-year yield down at 2.38% after a second strong week running for bond markets.

The dollar lost a little of its shine against the safe-haven yen to stand at ¥109.64 from a top of ¥110.03. Against a basket of currencies, it was a shade softer at 96.824.

Yet the euro could make no ground and held at $1.1173, down 0.5% for the week so far.

Sterling was one of the worst performers as Britain’s Prime Minister Theresa May battles to keep her Brexit deal, and her premiership, intact amid growing fears of a disorderly departure from the EU. The pound touched a three-month low of $1.2783 and was down 1.6% for the week so far.

Also under pressure was the Australian dollar, losing 1.5% for the week to $0.6880 as investors piled into bets that interest rates would be cut in June.

Cyber-currency bitcoin tumbled over 20% at one stage for no clear reason. It was last down 7%, albeit back on course for its third week of gains and having doubled in value this year.

In commodity markets, spot gold steadied at $1,287 an ounce as risk sentiment soured.

Oil futures firmed into a fourth session as rising tensions in the Middle East stoked fears of potential supply disruptions. US crude was last up 33c at $63.20 a barrel, while Brent crude futures rose 19c to $72.81.

Oil cartel Opec and other producers will meet in Saudi Arabia this weekend over whether to continue with supply cuts that have boosted prices more than 30% so far this year.

Reuters