Trade angst, growth scares haunt global stocks as bond yields slide
Traders work on the floor of the New York Stock Exchange on Thursday. Agence France-Presse
MSCI’s index of world stocks slipped 0.2%. The eurozone benchmark index eked out small gains after suffering their worst day since the early August selloff on Wednesday, when the US got the go-ahead to impose tariffs on $7.5 billion of European goods.
But a reduction in the initial list propped up some sectors. Food and beverage stocks and industrial goods enjoyed healthy gains. France’s CAC index rose 0.3%. German markets − a weather vane for exports − were closed for a national holiday.
Meanwhile, fresh data showed UK services activity unexpectedly contracted, suggesting country was flirting with recession. The FTSE 100, already in the grip of Brexit uncertainties, extend losses to 0.8%.
The latest US-European trade tensions added to fears over the standoff between Washington and Beijing, which has cast a shadow over global growth prospects. Earlier in the week, disappointing data on US manufacturing and the jobs market suggested the trade war with China had damaged the world’s largest economy.
“The wild card in the pack is always Donald Trump and whatever he tweets next.” Asian shares had racked up losses earlier in the day. Japan’s Nikkei stock index closed down 2%, its biggest one-day decline since Aug. 26.
US stock futures indicated a flat opening after shares fell the most in nearly six weeks on Wednesday. All three major New York share indexes lost more than 1.5%.
“Risk aversion is broadly on the rise and that has been triggered by the weakness in US manufacturing ISM data earlier this week,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.
“The outperformance of the US economy compared to other major economies has held the dollar and other risky assets up but that has changed this week.” The flight to safety saw yields on two-year US Treasury yields slip to 1.4560%, nearing a two-year low of 1.4280%. Adding to pressure on yields was a weak US jobs report, boosting expectations the Federal Reserve will cut interest rates this month.
Traders see a 74% chance the Fed will cut rates by 25 basis points to 1.75%-2.00% in October, up from 39.6% on Monday, according to CME Group’s FedWatch tool.
Bets on a rate cut could rise further if a US non-farm payrolls report on Friday shows weakness in the labour market.
Government bond yields in safe-haven Germany fell for the first time in over a week.
In currency markets, the dollar rebounded from against the Japanese yen to trade at 107.12 yen. It at $1.0955 per euro. The dollar index traded unchanged.
Sterling was unfazed at $1.2306 despite a surprise contraction as investors waited for a European Union response to Britain’s latest Brexit offer.
So far, the last-ditch Brexit proposal offered by Prime Minister Boris Johnson on Wednesday has received a cool reception. One senior EU official said it “can’t fly” because it was an unworkable move backwards that left Britain and the EU far apart.
Brent crude prices slipped 0.3% to $57.44 per barrel. Energy traders are worried about a slowing global economy, an over-supplied market and geopolitical friction in the Middle East.
The European Commission will quickly start work on a tax on foreign polluting firms, the nominee for the EU’s economic and tax commissioner said on Thursday, a move that could hit US companies and deepen a trade war with Washington.
In his confirmation hearing before EU lawmakers, Italy’s Paolo Gentiloni also pledged “adequate” fiscal efforts to counter an economic slowdown in the eurozone that he said could be longer than currently expected.
“We will try to be very quick and effective on a carbon border tax,” Gentiloni, who is due to take office in November, said.
He warned of legal and technical hurdles in devising the levy, but said work would start immediately to make sure the tax would be compatible with World Trade Organization rules.
The tax is meant to shield European companies from competitors based in countries where climate protection schemes are not as strict.
President Donald Trump intends to pull the United States out of the international Paris climate protection deal that aims to reduce carbon emissions. Under the terms of the pact, that cannot happen before Nov. 4, 2020.
Gentiloni’s remarks come the day after the United States said it would slap 10% tariffs on European-made Airbus planes and 25% duties on French wine, Scotch and Irish whiskies, and cheese from across the continent as punishment for illegal EU aircraft subsidies..
Previous European commissions have resisted calls, led by steelmakers and traditionally protectionist France, for a carbon levy, but fresh momentum has come from increased prices in the EU Emissions Trading System (ETS), the European Union’s flagship instrument for making polluters pay.
In separate comments to lawmakers, Gentiloni, a socialist former Italian prime minister, also said minimum corporate tax rates were one of the possible solutions to what he said was unacceptably excessive tax competition between EU states. Currently, the 28 EU countries decide freely their national tax rates for firms, with the EU having limited powers only on minimum rates on sales taxes.
He reiterated the EU should move alone on an EU-wide tax on digital corporations if no deal was reached at global level in 2020. He said he was confident, although “not fully optimistic”, about an international agreement by that deadline.
In the event of no consensus, he said the European Commission would begin working on a proposal for an EU digital tax from next summer and would seek to take away from EU governments the veto power on tax matters that prevented the introduction of a digital levy in the bloc last year.
Reuters
