World stocks fall for third day on global trade-war effects
Chemical giant BASF shares fall almost 6% after profit warning with Deutsche Bank shares continuing to tumble after axing 18,000 jobs
London — World stocks fell for a third straight day on Tuesday, as a stinging warning came from German chemicals giant BASF about the effects of the global trade war and traders hedged bets on a hefty US interest rate cut later this month.
With global macro-economic clouds looming and critical policy signals due from US Federal Reserve chair Jerome Powell on Wednesday, the headlines and mood focused on three individual stocks.
Shares in BASF slumped almost 6% in Europe after the German chemicals giant issued what one trader described as a “shocking” profit warning, blaming a global slowdown and trade war between the US and China.
Deutsche Bank tumbled 4% — having already dropped 5.4% the previous day after it axed 18,000 staff — while Apple’s overnight drop of more than 2% on Wall Street after a broker downgrade dragged the tech sector lower.
“Both from a bottom-up and top-down perspective, equity market valuations appear far too ambitious,” analysts at Morgan Stanley wrote in a note. It was particularly stark, they said, as the US business cycle is in a downturn and both forward-looking indicators such as global purchasing managers’ indices (PMIs) and global trade are now in contraction territory.
“Indeed, companies have begun cutting their 2019 profit forecasts, citing the trade conflict as a reason.”
In the currency markets, the big question remained the potential reaction to the weaker outlook from the world’s top central banks.
Powell gives a testimony before US Congress on Wednesday. Money market futures are still fully pricing in a 25-basis-point (bps) cut at the Fed’s July 30-31 meeting, but have almost priced out a larger 50-bps move that had been seen as a real possibility a couple of weeks ago.
The dollar changed hands at ¥108.78, having risen in the previous session to its highest in more than a month. The dollar index versus a basket of six major currencies was also a touch higher at 97.432, while the euro dropped as low as 1.1204, its weakest level since mid June.
“It would be pretty disruptive at this stage for Powell to rule out a cut in July, or dampen expectations of a cut in July,” said Michael Metcalfe, head of global macro-strategy at State Street Global Markets.
“The last few Fed speakers, albeit non-voting speakers, have suggested July is not a done deal ... and even now, if you look at economists’ forecasts, there is not a consensus that there will be a move, and yet the market is 100% priced.”
Elsewhere, the pound stood at $1.2485, not far from six-month lows of $1.2481 touched on Friday. Britain’s parliament will weigh an amendment later aimed at ensuring it cannot be sidestepped if the next UK prime minister wants to pursue a no-deal Brexit divorce from the EU.
Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.4% but pared earlier losses, having traded at its lowest level since June 19.
Chinese blue-chips ended down 0.3%, while Hong Kong’s Hang Seng fell 0.7%. Japan’s Nikkei was the only outlier as gains in a few heavyweights in the index helped it edge up 0.1%.
Apple’s suppliers, such as Murata Manufacturing and Taiyo Yuden, fell 2% and 4%, respectively, however, after Rosenblatt Securities cited a “fundamental deterioration” for the US iPhone maker over the next six to 12 months.
In Greater China, suppliers from Hon Hai to AAC Tech also lost between 1.4% and 3.1% and in Europe Infineon, ASM and STMicroelectronics slipped about 2%.
Among commodities, oil prices were slightly softer as concerns about whether slowing global growth would hit demand eclipsed tensions over Iran’s nuclear programme. Brent crude futures fell 0.2% to $64.01 a barrel. US West Texas Intermediate (WTI) crude futures shed 0.4% to $57.46.
Gold prices also ticked lower, as the dollar scaled its multi-week highs. Spot gold was down 0.2% at $1,393.03 an ounce and US gold futures fell 0.3% to $1,395.70 an ounce.
Wall Street futures were 0.4% to 0.6% percent lower.