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World stocks capped by trade war concerns, central banks

Reuters  |  LONDON 

By Rao

LONDON (Reuters) - World stocks hovered near one-month highs on Wednesday as an expected U.S. interest rate rise and risks of a fresh outbreak of trade tensions between China and the overshadowed a generally benign political and economic backdrop.

Wall Street appeared set for a modestly firmer open, potentially building on the previous session's gains, which were fuelled by buoyant mergers and acquisitions activity among media and telecoms firms.

European shares rose too as global company earnings have been revised up, according to I/B/E/S.

However, assets such as Chinese stocks, European autos and the Mexican peso are under pressure from the risk of protectionist measures from the which is preparing to unveil more tariffs on $50 billion worth of Chinese goods.

And the U.S. Federal Reserve, the and the Bank of all hold policy meetings this week, with the Fed expected to announce its second rate rise of 2018.

Equity markets are "marking time and finding it difficult to make upward progress despite reasonably good economic data", said Andrew Milligan, of global strategy at

"We are entering three days of Markets have pretty much priced what (the banks) will do and it is clear we are in a monetary policy tightening cycle."

These issues eroded slim gains made around Tuesday's summit between U.S. and North Korean leader The meeting has soothed some geo-political fears, as a joint statement pledged to work toward the "denuclearization" of the

MSCI's all-country share index was flat, recovering slightly from deeper losses caused by a half percent fall in non-Asian equities.

European stocks too were 0.3 percent higher after a weak start, led by a 1.4 percent rise in the tech index and an 80 percent leap in Dutch fintech firm on its first day of trading.

An index of auto stocks lagged, however, with gains of 0.2 percent.

Milligan downplayed the impact of U.S. trade measures on global commerce but noted "the direction of travel is not positive, which is why equities are not making as much progress and investor sentiment is not more positive."

Investors see trade wars as the biggest market risk, a closely watched survey from Lynch (BAML) showed. It showed investors bullish on equities but still holding high levels of cash in portfolios -- a clear sign of wariness.

In a reminder of the danger of trade disputes, shares in Chinese fell as much as 41.5 percent, wiping $3 billion off its market value, as it resumed trade after agreeing to pay up to $1.4 billion in penalties to the

Its shares fell by their 10 percent limit, dragging down mainland Chinese shares around 1 percent

The Mexican and Canadian currencies, remained under pressure from trade war fears, the former hitting 16-month lows against the U.S. dollar.

POLICY

Investors see central as the second-biggest risk for markets, the BAML poll showed.

Projections from the Fed's March meeting suggest a benchmark rate of 2.1 percent at end of 2018. That implies a total of three rate rises this year. But some reckon four increases are possible.

"The focus is on how many times the Fed will raise rates this year and next and how much beyond the levels it considers as neutral to the economy, or what they call the longer-run rates," said Shuji Shirota, of macro group at in

As the Fed meeting approached, the dollar traded flat against a basket of currencies giving up some earlier gains but stayed near three-week highs versus the yen.

It firmed sharply against some emerging currencies -- the Turkish lira fell one percent towards recent record lows

The euro eased off last week's three-week high of $1.1840 but remained underpinned by expectations the ECB will mention plans to wind up its stimulus and even hint at the timing of its first interest rate rise when it meets on Thursday.

However, Italian bond yields fell further with two-year yields down 14 bps to below 1 percent after EU Paolo Savona, considered a eurosceptic, said the euro was "indispensable".

Such comments have soothed worries about Italy's euro membership, but analysts say the government's high-spending plans could boost yields again once the relief rally ebbs.

"In the longer term, they need to do something different to bring the deficit under control, not just pay lip service towards the euro," said.

Britain's pound and bond yields slipped as data showing subdued inflation checked expectations for an interest rate rise this year.

(Additional reporting by in Tokyo, graphic by editing by and Alexander Smith)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, June 13 2018. 16:37 IST
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