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Shares sink as U.S.-China trade talks go to the wire

Stock MarketsMay 09, 2019 08:46AM ET
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© Reuters. The German share price index DAX graph at the stock exchange in Frankfurt

By Marc Jones

LONDON (Reuters) - World shares tumbled for a fourth day running on Thursday after a warning from U.S. President Donald Trump that a long-worked-on trade deal with China was in serious danger.

Chinese Vice Premier Liu He was heading to Washington for two days of talks, but Trump's insistence that China "broke the deal" and Beijing's response that it would retaliate against a planned U.S. tariff increase raised the stakes.

Europe's main stock markets and Wall Street futures sank 0.5 to 1.3 percent (EU) after a torrid day for Asia saw more than 1.8 percent taken off China and more than 3 percent off South Korea, seen as the bellwether for the trade war.

Both countries' currencies were hit too, the won skidding to a more than two-year low and the yuan to a four-month trough, all of which sent the traditionally safe Japanese yen and U.S. and German bond prices higher. [/FRX]

"Markets remain on edge ahead of the Chinese vice premier’s visit to Washington," Rabobank analyst Bas van Geffen said.

"Doubt that this tariff increase can be avoided is growing," he added, as Goldman Sachs (NYSE:GS) also raised its chances of a hike to 60 percent.

If talks do falter, Washington has said it will lift tariffs on $200 billion of Chinese goods to 25 percent from 10 percent at 12:01 a.m. ET (0401 GMT) on Friday.

Economists worry that would further slow the global economy and Kazuhiko Fuji, senior fellow at RIETI, a Japanese government-affiliated think-tank, said the outlook for the trade talks now looked fragile.

"I would suspect the U.S. will just hand China an ultimatum," he said. "No wonder the U.S. yield curve is almost inverting again."

The closely-watched curve - measuring the difference between the yields on different-length bonds - turned negative in late March, spooking investors who read the development as portending a recession.

The yield gap between three-month U.S. government bonds, at 2.42 percent, and benchmark 10-year notes was just 3 basis points, compared with about 15 basis points a few weeks ago.

UBER IPO

Wall Street was expected to start 0.7-0.8 percent lower after a choppy day on Wednesday saw the Dow Jones nudge fractionally higher but the S&P 500 and Nasdaq drop 0.2 percent and 0.3 percent respectively. (N)

As well as the trade headlines, traders will be closely watching the pricing on ride-hailing firm Uber's initial public offering which is set to be the biggest of the year so far and value it at up to $90 billion.

"In the event of a complete breakdown in (trade) talks and higher tariffs, we would expect this to see U.S. stocks trade 10–15 percent below their highs and a fall of around 15–20 percent in the Chinese market," Mark Haefele, global chief investment officer at Global Wealth Management at UBS, said.

In the currency market, the Japanese yen surged to a three-month high of 109.58 yen to the dollar before steadying, while China's yuan fell half a percent to hit a four-month low of 6.838 and notch its biggest four-day drop in a year.

Turkey's lira was taking blows again too, hitting an eight-month low as traders remained concerned about a decision to re-run Istanbul's mayoral election.

To squeeze supply and steady the currency, the country's central bank called off a funding auction on Thursday. It took similar action in March when the lira plunged before local elections, but that also created worries about trading it.

"These are all stop-gap measures, when the fundamental concern is that there is zero faith in Turkey's macro policy management at the moment," said BlueBay Asset Managment's Timothy Ash.

Sterling, meanwhile, was trying to brush off concerns that Brexit talks between Britain's government and the main opposition party may soon collapse to claw back above $1.30.

Commodity markets also felt the U.S.-China trade strains.

Brent crude futures dropped 0.6 percent to $69.92 a barrel, while U.S. West Texas Intermediate crude also retreated 0.6 percent to $61.75 despite a surprise fall in U.S. crude stockpiles. [O/R].

Benchmark London copper hit its lowest in nearly three months, at $6,111 a tonne. [METL]

(Additional reporting Tomo Uetake in Sydney, Noah Sin in Hong Kong; Editing by Dale Hudson and John Stonestreet)

Shares sink as U.S.-China trade talks go to the wire
 

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Comments (7)
Hank Williams
Hank Williams May 09, 2019 7:15AM ET
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Apparently somebody did not do their research on history of China agreements.
David Smith
David Smith May 09, 2019 7:15AM ET
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And the usa itself! Dont forget irans deal and paris deal if you really know how to research!!!
Jonathan Snell
Jonathan Snell May 09, 2019 6:51AM ET
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Trum got smart. You will not hear any news until markets have closed.lmbo.
Suman Jutur
Suman Jutur May 09, 2019 6:30AM ET
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Just because China signs an agreement, it does not mean they need to honor it. That simple. Much like Trump who breaks all agreements arrived at by his predecessors.
bomz bomzov
bomz bomzov May 09, 2019 6:30AM ET
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premarket  working
PlanetApe Ape
PlanetApe Ape May 09, 2019 6:12AM ET
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Looking at past few times where he takes to Twitter on this issue, I suspect he takes a short position and Tweets - it also helps him to play hard ball at the negotiating table!
Ilya Atomiq
Ilya Atomiq May 09, 2019 6:12AM ET
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true
Danny ortiz
Danny ortiz May 09, 2019 4:09AM ET
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lmao "This is the worst-case scenario we modeled last year that resulted in recession conditions in the United States" I don't see no recession in USA. all gravy here. #MAGA
ian manro
ian manro May 09, 2019 4:03AM ET
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these type of b.s. articles make me sick to my stomach. The certitude of these so called writers dizzying. How do these people know why billionaires and millions of people who trade make the market go up or down? Is there a daily survey I'm not aware of?
Peter Dee
Peter Dee May 09, 2019 3:25AM ET
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3% drop......brings Dow to about. 25000.
 
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