Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Stocks struggle near three-week lows but no respite for emerging markets

Published 09/12/2018, 08:20 AM
Updated 09/12/2018, 08:20 AM
© Reuters. People walk through the lobby of the London Stock Exchange in London

By Sujata Rao

LONDON (Reuters) - Fresh sparring between Washington and Beijing over trade kept up pressure on world markets on Wednesday, with equities struggling and emerging currencies mostly weaker, led by the Indian rupee hitting a record low.

A bruising session in Asia took MSCI's main Asia-Pacific ex-Japan index to a 10th straight day in the red, its longest losing streak since September 2000.

Bourses in Shanghai, Hong Kong and Tokyo all closed lower, taking emerging equities to a new 15-month low. MSCI's all-country equity index inched up marginally, looking to extend two sessions of modest gains that had snapped six straight days of losses.

"What the market needs is a signal of some relaxation in trade rhetoric, a bit of climbdown," said Salman Ahmed, chief investment strategist at Lombard Odier. "That should be enough as (economic) fundamentals are strong. But you do need a trigger point and so far we have not seen it."

The months-long escalation in tensions between the world's two biggest economies shows no sign of letting up. President Donald Trump said on Tuesday the United States was taking a tough stance with China. That cemented expectations that new levies on Chinese exports will soon be announced.

Earlier China told the World Trade Organization (WTO) it wanted to impose $7 billion a year in sanctions on the United States in retaliation for non-compliance with a ruling in an earlier trade dispute.

Equity markets also faced pressure from U.S. two-year bond yields which touched a decade peak on Tuesday, partly spurred by data that provided yet more evidence of the U.S. economy's strength.

That data had pushed Wall Street to a strong close, led by tech and energy shares, and futures for the tech-heavy Nasdaq benchmark were up 0.2 percent on Wednesday. The S&P500 and Dow Jones indexes looked set for flat openings, however.

In Europe, a pan-European index rose 0.2 percent off recent five-month lows though it gave up earlier strong gains.

Ahmed said another positive catalyst for markets could be signals from the U.S. Federal Reserve that it could slow the pace of interest rate rises. But given the torrent of strong U.S. data, that looks unlikely - data this week showed U.S. small business optimism at the highest level on record.

"In 2015 when emerging markets got into a lot of trouble the Fed recognized the international spillover effect. This time that has not happened," he added.

UNDER PRESSURE

The trade rows and higher U.S interest rates have pushed an index of emerging currencies almost 7 percent lower this year. The yuan touched 2-1/2 week lows against the dollar, leading Asian peers lower and keeping the Australian dollar - heavily linked to Chinese trade - close to its lowest since February 2016.

The dollar inched down against a basket of currencies as hopes grew of concessions by Canada that would resolve disputes over reworking the North American Free Trade Agreement.

But emerging currencies stayed under pressure.

While the worst-hit Turkish lira and Argentine peso have steadied off record lows, the Indian rupee is continuing to plumb new troughs, taking year-to-date losses versus the dollar to more than 12 percent.

"The rupee ... is symptomatic of the overall situation in emerging markets, but it also embeds some idiosyncratic problems - with the fiscal deficit growing and the current account deficit widening on (the) back of rising commodity prices," said Cristian Maggio, head of emerging markets strategy at TD Securities.

Markets will also keep an eye on U.S. bonds. Ten-year yields stand just off the one-month highs hit on Tuesday after data showing sustained strength in the jobs market and the Treasury started a record debt sale amounting to almost $150 billion.

Political risk meanwhile returned to the radar of investors in Italy and Britain. Italian bond yields, which fell to six-week lows in recent days, rose after local media reported 5-Star, one of the parties in the ruling coalition, was demanding 10 billion euros in the budget to implement plans for a basic universal income.

The British pound also slipped off five-week highs hit this week against the dollar, as cautious optimism over a Brexit trade deal with the European Union subsided.

© Reuters. People walk through the lobby of the London Stock Exchange in London

Oil prices extended Tuesday's $2 surge, with Brent futures close to $80 a barrel as Hurricane Florence advanced and U.S. sanctions started weighing on Iran's exports.

Latest comments

US and China ‘aim to solve trade war by time Donald Trump and Xi Jinping meet at G20 in November’
‪Our stock markets are resilient and strong. All dips have been bought. NAFTA deal will be announced shortly. A China trade deal will also be announced soon after. Technology and banking stocks will rise the most. Bond yields rising is a positive for banks like Citigroup (C)‬
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.