Equities dip despite optimism on US-China trade – Financial Times


Thursday 09.15 GMT

What you need to know

  • European markets have dipped as the US government shutdown causes concern
  • Asian stocks closed lower as the boost from US-China trade talks faded
  • The dollar has stabilised in the wake of the Fed’s latest minutes
  • Brent crude has walked back some gains but hovers above $60 mark

Overview

European equity markets have opened lower after early gains in Asia ebbed as the positive glow from this week’s US-China trade negotiations faded and tempers trayed in Washington over the ongoing US government shutdown.

The FTSE 100 dipped 0.5 per cent and the Europe-wide Stoxx 600 fell 0.7 per cent, despite positive statements from both sides following the end of the trade talks.

Tokyo’s Nikkei closed 1.3 per cent lower and China’s CSI 300 index of Shanghai and Shenzhen-listed stocks closed 0.2 per cent down, although Hong Kong’s Hang Seng incrementally gained, up 0.1 per cent.

The US dollar has stabilised after a tumble prompted by expectations of a more cautious policy approach from the US Federal Reserve. The publication of the minutes to the Fed’s December meeting eased investors’ fears that further rate hikes were imminent.

Wall Street closed on Wednesday showing signs of fatigue, with the S&P 500 up 0.4 per cent after a string of strong gains.

“The breakdown of talks on the US government shutdown has made investors worry a little,” said Paul Donovan, chief economist at UBS Global Wealth Management. “The emphatic way in which the talks fell apart may raise investor concerns about what the next two years in Washington is likely to look like.”

Meanwhile China’s renminbi touched a five-month high as analysts tipped Beijing to ratchet up easing and stimulus measures in the wake of official data out on Thursday that pointed to weaker inflation in December.

Capital Economics economist Julian Evans-Pritchard said slower inflation gave Beijing “plenty of room” to loosen monetary policy, adding: “If anything, cooling factory gate inflation will strengthen the case for the central bank to do more to ease financial pressure on industrial firms including by cutting benchmark lending rates”.

The stock market moves came despite China’s ministry of commerce releasing a statement characterising trade negotiations with the US that concluded on Wednesday as “extensive, deep and meticulous”, suggesting investor optimism for a resolution to the two countries’ trade war was waning.

Forex and fixed income

The dollar index, which tracks the US currency against a basket of international peers, reversed early losses to trade flat on the day.

That followed a rough Wednesday session that saw the index tumble to its lowest level in three months on expectations the Fed would take its time on further rate rises and partisan bickering in Washington over the ongoing government shutdown.

The dollar’s weakness saw China’s currency strengthen to its firmest level against the dollar in more than 150 days.

The onshore renminbi, which trades within two per cent in either direction of a midpoint set each day by the People’s Bank of China, gained as much as 0.5 per cent to Rmb6.7845 per dollar, its strongest level since August 2018. The offshore rate strengthened by as much as 0.4 per cent to Rmb6.7851.

Sterling is 0.2 per cent lower at $1.27 as the UK Parliament debates the government’s EU departure plans.

Sovereign bond markets were little moved with yields, which move inversely to prices, on 10-year US Treasuries up 1 basis point at 2.697 per cent. The 10-year Greman Bund yield is up 1 bp at 0.2 per cent.

Commodities

Oil prices have given back some of the previous session’s gains with Brent crude, the international benchmark, down 1.4 per cent at $60.57 a barrel and US marker West Texas Intermediate off 1 per cent at $51.85.

Gold rose 0.3 per cent to $1,296 per ounce, just below its recent highs when it was at its most expensive level since mid-2018.

For market updates and comment follow us on Twitter @FTMarkets



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