World stocks head down on poor risk appetite and US tariffs
The approval of US tariffs on $7.5bn worth of European goods hit already weak sentiment, as the dollar slipped to a one-week low
London — World stocks hovered near four-week lows on Thursday and yields on major benchmark bonds slipped after Washington moved to impose new tariffs on European goods, fueling fears about global growth and dousing risk appetite.
MSCI’s index of world stocks slipped 0.1%, with Asian shares plunging. Japan’s Nikkei stock index closed down 2%, its biggest one-day decline since August 26.
However, European stocks eked out small gains after suffering their worst day since last December on Wednesday, when the US got the go-ahead to impose tariffs on $7.5bn of European goods. Washington will enact 10% tariffs on Airbus planes and 25% duties on French wine, Scotch and Irish whiskies, and cheese from across the continent as punishment for illegal EU subsidies to Airbus.
However, a reduction in the initial list propped up some sectors with the pan-regional Stoxx 600 index up 0.2%, torn between falls in financials and gains in luxury goods stocks. France’s CAC 40 index rose 0.7% while Britain’s FTSE 100 fell 0.5%. German bourses — a weather vane for exports — were closed for a national holiday.
The latest US-European trade tensions added to fears over the stand-off between Washington and Beijing, which has cast a shadow over global growth prospects. Earlier in the week, disappointing data on US manufacturing and the jobs market suggested the trade war with China has damaged the world’s largest economy.
“The big question for a lot of folks is whether this is the third slowdown since the financial crisis or are we now heading for a global recession,” said Anujeet Sareen, a fixed-income portfolio manager and global macro-strategist for Brandywine Global. “The wild card in the pack is always Donald Trump and whatever he tweets next.”
US stock futures indicated 0.4% higher, after shares fell the most in nearly six weeks on Wednesday. All three major New York share indices lost more than 1.5%.
“Risk aversion is broadly on the rise, triggered by the weakness in US manufacturing ISM data earlier this week,” said Manuel Oliveri, a forex strategist at Crédit Agricole in London. “The outperformance of the US economy compared to other major economies has held the dollar and other risky assets up but that has changed this week.”
The flight to safety saw yields on two-year US treasury yields slip to 1.4680%, nearing a two-year low of 1.4280%. Adding to pressure on yields was a weak US jobs report, boosting expectations the Federal Reserve will cut interest rates this month.
Traders see a 72.8% chance the Fed will cut rates by 25 basis points to 1.75%-2.00% in October, up from 39.6% on Monday, according to CME Group’s FedWatch tool. Bets on a rate cut could rise further if a US non-farm payrolls report on Friday shows weakness in the labour market.
Government bond yields in safe-haven Germany fell for the first time in over a week.
In currency markets, the dollar dipped to one-week lows against the euro and yen. The greenback crossed ¥107 and touched a week low of ¥106.95 before recovering some ground. It fell to $1.0973 per euro. The dollar index slipped 0.1%.
Meanwhile, sterling was flat at $1.2306 as investors waited for an EU response to Britain’s latest Brexit offer, which Prime Minister Boris Johnson offered on Wednesday. So far, the last-ditch Brexit proposal has received a cool reception. One senior EU official said it “can’t fly” because it was an unworkable move backwards that left Britain and the EU far apart.
Brent crude was flat at $57.84 per barrel. Energy traders are worried about a slowing global economy, an over-supplied market and geopolitical friction in the Middle East.
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