World shares stall as the dollar extends its power surge
The European bourses and euro are hit by more weak German data as the European Commission slashes Italy’s growth forecast
London — World shares ground to a halt on Thursday as the dollar scored its longest winning streak since a hot run in early October that helped set off a wave of global “bear” markets.
Some poor earnings and weak data out of Germany ensured Europe’s main bourses started lower and kept MSCI’s main index of world stocks heading for only its second two-day run of falls of the year so far.
The extent of the current slowdown in the global economy was highlighted as India unexpectedly cut its interest rates and the euro got hit to $1.1346 by Germany’s fourth consecutive drop in industrial output.
That only compounded the 1.3% the euro has lost over the past week and the tailwind behind the dollar, which has risen every day since Friday’s strong US jobs data. It has also recovered almost all the losses suffered after the US Federal Reserve all but abandoned plans for more rate hikes last month.
“Another day, another piece of terrible German data. Euro/dollar risks a move to $1.1300,” said ING’s chief EMEA FX and interest rate strategist, Petr Krpata.
Elsewhere, the pound was struggling near $1.29 again ahead of a Bank of England meeting, while gloomy jobs data saw New Zealand’s dollar suffer the similar flop its Australian counterpart had seen the previous day.
The kiwi slid to $0.6744, losing nearly 2% in the past 24 hours, as investors wagered on the risk of a cut in interest rates there. The country’s central bank holds its first meeting of the year next week.
Asian trading was still light overall though with China on holiday and no major economic data on the diary.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.1% as it rose to its highest since early October.
The index has risen steadily since early January as the US Federal Reserve changed its tune and emerging markets have surged more broadly after a torrid 2018.
Australia’s benchmark stock index jumped 1.2% amid expectations of easy monetary policy after the country’s central bank chief shifted away from his previous tightening bias.
Japan’s Nikkei slipped 0.6% though and the caution quickly spread to Europe.
London’s FTSE was the only major bourse clinging to positive territory whereas the rest were down at least 0.2%, as were E-Mini futures for the S&P 500 and Dow.
We’re all doves now
One of the day’s big surprises came from India where its central bank unexpectedly lowered interest rates to 6.25% to boost a slowing economy after a sharp slide in the inflation rate.
Italy’s bonds were back under pressure with the European Commission slashing its 2019 growth forecast. Italy agreed a deficit target of 2.04% in December, averting a major fall-out with the EU, though this was based on a growth assumption of 1%. Slowing growth in Italy could make it harder for the country to remain within EU rules.
However, Benjamin Schroeder, rates strategist at ING, said he did not expect the EU to demand more fiscal tightening from Italy, should its forecasts be reduced. “The EU has another thing to deal with — Brexit — and the other thing is do you want to infuse the campaign ahead of the parliamentary elections with this topic.”
The next major trigger for markets will more likely be any breakthrough in the US-China tariff talks when the two sides meet in Beijing next week.
US President Donald Trump offered little new to chew on in his state of the union speech but US treasury secretary Steven Mnuchin said on Wednesday that he and other US officials will aim to clinch a deal next week to avert a March 2 increase in US tariffs on Chinese goods.
Probably more pressing though for the US markets is the threat of another government shutdown, Nick Twidale, an analyst at Rakuten Securities Australia said. “With both sides of the house standing firm on the contentious border-wall issue at present, and the deadline approaching swiftly on February 15, we could be back where we were just a few weeks ago.”
The broad dollar gains put pressure on gold, which eased to $1,303.96 an ounce, slipping further from last week’s top of $1,326.30.
Oil prices eased too after US crude inventories rose and as production levels in the country held at record levels. Brent crude futures slipped 23c to $62.46. US crude eased 19c to $53.82 a barrel.