World stocks and commodity markets recover after tailspin
China shares recover 2% and European shares edge up; the German bund and US treasury spread is growing, with traders on high alert for trade war moves
London — Stocks and commodity markets regained some poise on Thursday, having suffered wild tailspins in the previous session as the US ratcheted up trade-war threats on China.
A 2% rebound on China’s big bourses steadied Asian nerves as oil markets clawed back some of Wednesday’s 7% slump that had marked their worst day in two-and-a-half years.
Beaten-up industrial metals, including copper and nickel, and European stocks pulled higher too in early trade, while there was some relief for Turkish markets after the lira had been dumped to a record low by interest rate cut talk from its re-elected President Recep Tayyip Erdogan.
The dollar, meanwhile, rose to a six-month high against the yen after US inflation data bolstered the case for more US Federal Reserve rate hikes this year.
"It mostly seems to be relief after the all-red, risk-off day yesterday," said Rabobank strategist Bas van Geffen. "The basis for this is not entirely clear to me, though, because it doesn’t seem like this [US threats of another $200bn of China trade tariffs] has actually restarted negotiations with China ... In fact, I would argue that it has made the risk of an accident or an unwanted outcome bigger."
Europe’s moves were less pronounced than Asia’s had been, perhaps reflecting that caution. The Shanghai Composite and blue-chip CSI300 indices had both ended the day up 2.2%. Shares in Japan, Australia and Hong Kong closed 1.1%, 1% and 0.6% higher respectively.
The pan-European STOXX 600 edged up just 0.2% though, with gains in the healthcare and consumer sectors offset by losses in the banking sector and in energy firms after the dramatic drop in oil prices.
Germany’s 10-year bond yield and the euro were both broadly steady with traders awaiting minutes from the most recent European Central Bank (ECB) meeting. A Reuters report showed its policy makers remain split on when to raise interest rates next year.
The difference between 10-year US treasuries and equivalent German bund yields stood near 30-year highs at 2.59%.
"If stocks drop sharply then the Fed will pause and, moreover, we think the US is towards the end of its rate-hike cycle," said Thu Lan Nguyen, an FX analyst at Commerzbank in Frankfurt.
Caution, fragile China
Focus was still on what the next steps in the tit-for-tat trade conflict might be. China has accused the US of bullying and warned it could hit back, although the form of retaliation is not yet clear. The retaliatory options available to China include boycotting American goods, sharply devaluing the yuan, and selling off US treasury holdings, Xiao Minjie, senior economist at SMBC Nikko Securities in Tokyo, wrote in a note.
China’s yuan had strengthened 0.3% overnight though, partially recovering from a big slide the previous day after an official currency market level set by the People’s Bank of China was not as weak as some had feared. "It shows the central bank intends to stabilise the market and calm investors. One-way speculation on the yuan’s depreciation is not in Chinese authorities’ interests," said Qi Gao, Asia FX strategist at Scotiabank in Singapore.
The dollar index against a basket of six major currencies was steady at 94.7 after gaining 0.6% overnight. Against the yen, which usually strengthens in times of political tension and market turmoil, the dollar stretched its overnight rally and rose to ¥112.385, its highest since January.
Commodity-linked currencies such as the Australian dollar crawled higher having suffered deep losses on Wednesday. The Canadian dollar was also shade higher at C$1.3201 to the dollar following a loss of 0.75% the previous day.
In commodities there was also stabilisation. Brent crude futures rose 1.5% to $74.52 a barrel after tanking 6.9% on Wednesday, after the trade tensions and signs that Libya’s oil exports could pick up again, triggered the biggest one-day percentage drop since February 2016.
Metals were recovering from their own 2% to 4% meltdown, too. Copper on the London Metal Exchange rose 0.8% to $6,194.00 a tonne. The industrial metal sank nearly 3% on Wednesday, plumbing a one-year low of $6,081.00.