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Global Markets: Investors slam brakes on stocks rally as trade, Fed worries dominate

Reuters  |  LONDON 

By Helen Reid

LONDON (Reuters) - World stocks slipped and U.S. shares were set to fall on Monday, halting a four-day recovery rally as anxiety surrounding global trade conditions and rising U.S. interest rates dampened risk appetite.

European shares managed to reverse losses in choppy trade as investors readied for U.S. congressional midterm elections on Tuesday, while sterling briefly climbed on a newspaper report that a agreement was imminent.

U.S. stock futures fell into the red, though, indicating a weaker start for Wall Street with futures down 0.1 percent and Nasdaq futures down 0.3 percent.

MSCI's all-country world index lost 0.2 percent as investors remained cautious.

"Everyone's on hold until the (end-November) and also the Fed coming up," said Gregory Perdon, co-chief investment officer at "Our sense is absolutely that there's a lot of cash on the sidelines right now."

Chinese fell overnight after denied has drafted a trade agreement with

But investors looked to signs of support from Chinese stimulus to withstand higher trade tariffs. promised to lower import tariffs and continue to broaden market access.

"The market hasn't been paying as close attention as they might normally because they've been a bit distracted by the spectre of a trade war. But the policy response out of has been massive," said Perdon.

Emerging stocks tumbled 0.8 percent.

With the Federal Reserve meeting on Wednesday and Thursday, the prospect of even tighter U.S. monetary policy after strong economic data is also on investors' minds.

Markets are now pricing in a higher probability of a December rate hike with further tightening to 2.75-3.00 percent seen through 2019.

Tighter monetary policy, a stronger dollar, and trade tariffs have created what strategists call "Trump's triple tightening" this year.

"This ... has slowed growth and raised risks around the world," they wrote.

Investors were also cautious ahead of the U.S. midterm elections.

Opinion polls show a strong chance the could win control of the after two years of wielding no practical political power in Washington, with Trump's likely to hold the

"What's spooking the market is not or - what's spooking the market is the volatility of Trump," said Perdon. "I'm not convinced if there's a change of control that would be able to temper that."


Sterling briefly jumped to a two-week high on hopes of a deal, before paring gains to trade up 0.1 percent at $1.2986.

A report that an all-UK customs deal will be written into the agreement governing Britain's withdrawal from the drove the pound to $1.3062, its highest since Oct. 22.

May's office said the report was speculative, but that 95 percent of the withdrawal agreement was settled and negotiations were ongoing.

The dollar index that measures it against a basket of major currencies was up 0.12 percent while the euro fell 0.2 percent to $1.1365.

Core euro zone bond yields fell as expectations of faster U.S. rate hikes, doubts over Sino-U.S. trade talks and the mid-term elections prompted more defensive positioning.

Italian bond yields rose, however, driving down 1.4 percent.

Italy's FTSE MIB was Europe's worst-performing index as analysts predicted more cuts to earnings forecasts for Italian lenders, cutting and to "sell".

steadied as the reimposition of U.S. sanctions against Iran's fuel exports was softened by waivers that will allow some countries to continue to import Iranian crude, at least temporarily.

Brent crude was unchanged at $72.83 a barrel.

Overall the recent drop in share prices has not been reflected in falling earnings expectations, and some expect stocks to pick up again once key political risks are out the way.

(Reporting by Helen Reid; Additional reporting by Virginia Furness; Editing by Matthew Mpoke Bigg)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Mon, November 05 2018. 18:59 IST