World stocks drift off recent highs over global growth worries
European stocks are down 0.4% but the pound is unmoved as EU pushes new Brexit deadline to Halloween
London — World stock markets nudged away from six-month highs on Thursday as investors weighed warning signs over growth from major central banks and as concern over protectionism rumbled, with the dollar and euro holding steady.
Sterling also traded flat after EU leaders gave Britain another six months to leave the bloc, with the latest pause in the Brexit process turning investors’ focus to the health of the British economy.
European markets made a subdued start, mirroring a disappointing day for Asian bourses that broke four days of gains. European stocks fell 0.4%, with bourses in London and Frankfurt losing ground, though Paris held steady.
Equities and other risky assets have been volatile this year, while bonds have rallied over worries of a recession in the US and the risk of a sharper slowdown in other major economies including the eurozone.
Against that backdrop, many central banks have taken a dovish policy twist, pivoting away from moves towards interest rate hikes. The US Federal Reserve will likely leave rates unchanged this year, minutes from its policy meeting last month showed, given risks to the US economy from financial conditions and protectionist trade policies. The European Central Bank (ECB) maintained its loose policy stance on Wednesday, highlighting threats to global growth and raising the prospect of more support being pumped into the struggling eurozone economy.
Looming in the background have been concerns of a retreat to protectionism, with US President Donald Trump threatening new tariffs on the EU n while the China-US trade dispute rumbles on.
The world’s two biggest economies have largely agreed on a mechanism to police any trade agreement they reach, including establishing new “enforcement offices”, said US treasury secretary Steven Mnuchin, with talks due to resume on Thursday.
“We do expect US growth to remain relatively tepid this year compared to what we saw last year, and it will probably lose further momentum as we head towards the end of the year,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.
MSCI’s world equity index, which tracks shares in 47 countries, fell 0.1%, pulling away from six-month highs hit this week. The mood was also cautious ahead of a run of disrupted trading weeks in major markets.
The Easter holidays are ahead, and Japan is due for an unprecedented 10-day break from late April to mark the ascension of its new emperor — the longest hiatus ever for the country’s share and bond markets.
Dollar firm and pound steady
After the dovish monetary signals, the dollar hovered near two-week lows and the euro was trading flat. Sterling was also struggling for direction after EU leaders extended the deadline for Britain to leave the bloc to October 31. This is more time than UK Prime Minister Theresa May says she needs, but less than many in the bloc wanted — thanks to fierce resistance from France.
Sterling was unchanged at $1.3087, staying within the tight trading range it has held to during the past month or so. With markets now judging the risk of Britain crashing out of the EU as lower, the focus of traders will turn — for the coming months, at least — to the underlying state of the British economy, said Thu Lan Nguyen, forex strategist at Commerzbank in Frankfurt.
“People have been focused on Brexit ... In the short-term, maybe these investors or traders will look more at the economic fundamentals,” she said.
Oil prices were dragged down by surging US crude stockpiles and record production, while economic concerns cast doubt over growth in demand for fuel. International benchmark Brent futures were at $71.52 a barrel at 6.42 GMT, down 0.3%.