Soft economic data out of China lead global shares down
London — World stocks fell on Tuesday as investors digested soft Chinese economic data and a lack of progress in US-China trade talks, while a rise in US borrowing costs supported the dollar.
MSCI’s world equity index, which tracks shares in 47 countries, was down 0.3%. Europe’s benchmark Stoxx 600 was 0.1% lower while Germany’s DAX 30 shed 0.2% as first-quarter economic growth in the country came in lower than expected.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8%. China reported weaker-than-expected investment and retail sales in April and a drop in home sales, clouding its economic outlook even as policy makers try to navigate debt risks and defuse a heated trade row with the US.
Mixed messages in US-China trade talks also weighed on sentiment.
The two countries are still "very far apart" on resolving trade frictions, US ambassador to China Terry Branstad said on Tuesday, as a second round of high-level talks was set to begin in Washington.
US President Donald Trump drew ire from legislators after suggesting he would help Chinese firm ZTE Corp, which flouted US sanctions on trade with Iran and North Korea, with intelligence officials also saying the decision threatened national security.
"Sino-US trade negotiations have provided mixed signals, [with] the White House promising conciliation [over ZTE] then indicating that some form of punishment is still in the cards," said Mike van Dulken, head of research at Accendo Markets.
In fixed income, the US 10-year bond yield rose above the key level of 3%, sending borrowing costs higher in a number of other countries and supporting the dollar.
The 10-year yield was last trading at 3.0226%, just off levels not seen since January 2014.
In Europe, the benchmark German bond yield rose 14 basis points to 0.629%, with investors also taking note of hawkish commentary from Bank of France governor Francois Villeroy de Galhau, who said the European Central Bank could soon give guidance on its first rate hike.
"We have this Galhau interview and he was very much pointing to rate hikes after the end of QE [quantitative easing]," DZ Bank rates strategist Daniel Lenz said, explaining the weakness in eurozone debt markets. "And we still have a high oil price and US treasury yields above 3%."
Against a basket of six major currencies, the dollar index gained 0.18%. Oil prices were stable on Tuesday as continuing production cuts by Opec and looming US sanctions against Iran threatened to tighten the market amid signs of ongoing strong demand.
Brent crude futures, the international benchmark for oil prices, rose to as much as $78.62 per barrel, touching a three-and-a-half-year high.
"The commitment of Saudi Arabia and the rest of Opec to the production cuts is a major factor in supporting the price at the moment as well as the possibility of reduced exports from Iran due to sanctions," Rivkin Securities investment analyst William O’Loughlin said.