World markets fall after winning streak, not helped by Donald Trump
Trump alarmed currency markets by tweeting that the euro and other currencies are ‘devalued’ against the dollar, putting the US at a ‘big disadvantage’
London — World share markets snapped a seven-day winning streak on Wednesday as the White House took a tough line on trade talks with China, while an impending reading on US inflation was set to refine the odds of an early cut in interest rates there.
Europe's main markets followed Asia by declining early on. London's FTSE, the DAX 30 in Frankfurt and CAC 40 in Paris were down 0.2% to 0.4% respectively, as traders trimmed some of June's 4% gains.
Benchmark government bond yields fell as caution grew. Forex dealers kept the dollar near an 11-week low before the US data, having priced in the first US rate cuts since the financial crisis.
"I think we are in for a very nervous wait until next week's federal open market committee meeting," Saxo Bank's head of forex strategy, John Hardy, said.
"You have had the markets taking out aggressive positions on where the Fed is going to go and everybody is wondering whether they are ready to deliver as much, in terms of guidance, as has been priced in."
Chinese inflation was in the mix, too. Figures overnight showed it picked up to a 15-month high of 2.7%, mainly because of surging pork prices. Excluding food, inflation rose only 1.6% and suggested plenty of scope for more stimulus.
MSCI's broadest index of Asia-Pacific shares outside Japan had slipped 0.6% after two days of gains. Wall Street's recent rally ended on Tuesday.
Japan's Nikkei dipped 0.3%. Shanghai blue chips fell 0.7% following a 3% jump the day before.
Hong Kong's Hang Seng lost 1.7% as demonstrators stormed roads next to government offices to protest against a bill that would allow people to be sent to China for trial.
"The impact was short-lived in the past," noted Alex Wong, director at Ample Finance Group in Hong Kong. "This time people will look at how the US reacts to this kind of news. The US attitude towards Hong Kong and China are also not the same."
US President Donald Trump said on Tuesday he was holding up a trade deal with China and had no interest in moving ahead unless Beijing agrees to four or five "major points", which he did not specify. He said interest rates were "way too high" and the Federal Reserve had "no clue".
US Fed policymakers will meet on June 18-19. With trade tension rising, US growth slowing and hiring in May declining, markets have priced in at least two rate cuts by the end of 2019. Futures imply about an 80% chance of an easing as soon as July.
That might change depending on what US consumer price data shows later in the session. Headline inflation is expected to slow to 1.9%, with the core rate steady at 2.1%.
Trump also alarmed currency markets by tweeting that the euro and other currencies were "devalued" against the dollar, putting the US at a "big disadvantage".
The euro gained to $1.1336, just short of the recent three-month high of $1.1347. The dollar fell against the yen to ¥108.25 and stalled on a basket of currencies at 96.608 .
"The president's tweets on the dollar have the potential to have much more lasting impact in the coming election year," said Alan Ruskin, global head of G10 forex strategy at Deutsche Bank. "Global conditions are nicely set for what has colourfully been described as a 'currency war' or a currency race to 'the bottom'."
The Turkish lira weakened as its central bank is expected to leave Turkey's main interest rate unchanged at 24%. In commodity markets, all the chatter of rate cuts kept gold near 14-month highs at $1,335.51 per ounce.
Oil prices dropped more than 2% as concern about a global economic slowdown offset expectations that Opec and its allies will extend their supply curbs.
Hedge fund managers have been liquidating bullish oil positions at the fastest rate since late 2018 amid growing economic fears.
Brent crude futures fell 1.4 US cents to $60.87, while US crude lost $1.2 to $52.10 a barrel.