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World stocks slip as trade tensions and central bank expectations dampen mood

Reuters  |  LONDON 

By Sujata Rao

LONDON (Reuters) - World stocks retreated on Wednesday from one-month highs, with investor focus turning from the U.S.-summit to an expected U.S. interest rate rise and the risk of a fresh outbreak of trade tensions between and the

Global tech stocks approached record highs and Italian yields fell, although markets remain under pressure from U.S. plans for extra tariffs on $50 billion worth of Chinese goods. The Mexican peso and European auto stocks, also vulnerable to trade-war risk, slipped further.

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," Milligan said.

The is expected to announce a 25-basis-point rate increase, this year's second. The and the Bank of also meet this week.

Tuesday's meeting between U.S. and North Korean leader has soothed some geo-political fears, as a joint statement pledged to work toward the "denuclearization" of the

That, alongside a buoyant picture on company earnings and M&A deals, helped Wall Street close on a strong note on Tuesday, with tech stocks hitting record highs

But trade frictions between the and pushed non-Asian equities half a percent lower and took MSCI's all-country share index 0.2 percent lower.

European equities opened flat to lower. An index of auto stocks, also at risk of additional U.S. tariffs, fell 0.25 percent.

Milligan downplayed the impact of U.S. trade measures on global commerce volumes 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."

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 peso and the Canadian dollar, caught up in trade war risks, slipped further, with the former at a 16-month low against the dollar.

POLICY

As the Fed meeting approached, the dollar inched up 0.2 percent against a basket of currencies and was close to a three-week high versus the yen.

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

The 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 yields continued to fall with two-year yields down 14 bps to below 1 percent after EU Paolo Savona, considered a eurosceptic, said the was "indispensable".

These comments soothed worries about Italy's 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 yields slipped as data showing subdued inflation tempered expectations for an interest rate rise this year.

Brent crude futures dropped to trade around $75 a barrel after data bucked expectations of a decline in U.S. crude stockpiles. There are also expectations OPEC may loosen its output cuts.

(Additional reporting by in Tokyo, editing by Larry King)

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

First Published: Wed, June 13 2018. 15:33 IST
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