Global Stocks Slide as Trade Tensions Threaten Growth
25 June 2018 - 11:03PM
Dow Jones News
By Jon Sindreu
Global stocks headed lower Monday, as investors continued to
parse the impact of a trade spat between the U.S. and China.
The Stoxx Europe 600 fell 1.1% in the European morning, with the
trade-heavy German Dax down 1.4%. The automobile sector, which
analysts see as particularly exposed to trade, led the losses and
fell 2%.
U.S. futures pointed to a 0.7% opening loss for the S&P
500.
In Asia, Hong Kong's Hang Seng and the Shanghai Composite shed
1.1% and 1.3%, respectively. Japan's Nikkei Stock Average closed
down 0.8%.
Investors around the globe have been spooked by the prospect of
a full-blown trade war between the U.S. and China. While the
tariffs so far announced by the U.S. administration -- and China's
retaliatory measures -- amount only to a small amount of goods,
analysts fear that tensions could escalate and spread across other
major economies.
President Donald Trump now also plans to bar many Chinese
companies from investing in U.S. technology firms.
Shares of car makers have been rattled by trade concerns: They
are down 0.9% and 7.2% on the month in the U.S. and Europe,
respectively, compared with a 1.8% rise for the S&P 500 and a
0.6% fall for the Stoxx Europe 600.
Trevor Greetham, multiasset head at Royal London Asset
Management -- a firm with around GBP114 billion ($151 billion)
under management -- has reduced his fund's bias toward stocks to
its lowest in six years, but remains positive on U.S. shares.
"It's more likely the trade issue impacts emerging markets than
it does the U.S., because the U.S. is a relatively closed economy,"
he said.
In Europe and emerging markets such as China, recent economic
data has pointed to weaker growth than earlier in 2018, further
dampening investor sentiment. On Monday, the monthly Ifo Business
Climate Index suggested German business sentiment deteriorated
further in June.
"We've moved away from the synchronous global expansion," said
Bob Baur, chief global economist at Principal Global Investors, who
believes global growth peaked around February of this year, but
that "the U.S. is still gaining momentum."
Some central banks are already moving to act as a cushion,
investors said.
On Sunday, the People's Bank of China said it would cut the
amount of reserves banks are required to keep with the central
bank, a move that can help lower borrowing costs -- even though
it's often associated with the need to free up liquidity to prop up
the currency.
The European Central Bank said two weeks ago that, even as bond
purchases are set to stop in December, interest rates in the
eurozone will remain unchanged at least until summer of next
year.
"We are getting to see signs of central banks outside the U.S.
turning a bit easier, and that should help stock markets perk up
later in the year, " added Mr. Greetham, who has been buying back
some bonds to account for easier central-bank policy.
After strong gains in the yuan against the dollar earlier this
year, the U.S. currency has now made up all the lost ground. The
WSJ Dollar Index, which tracks the dollar against a basket of
currencies, was up 0.1% Monday, and 10-year Treasury yields edged
down to 2.877% after closing at 2.902% last week.
Meanwhile, the Turkish lira dropped 0.8% on the day against the
U.S. dollar, after incumbent President Recep Tayyip Erdogan's
victory in Sunday's presidential and parliamentary elections,
Investors had initially focused on the "elimination of the
worst-case scenario of a hung parliament," wrote Morten Lund, an
analyst at Nordea Bank AB. Yet, the Turkish currency has been under
pressure in recent months due in part to Mr. Erdogan's policies --
chiefly, the perceived lack of independence of the central
bank.
In commodities markets, oil prices retraced some of Friday's
gains, obtained after major oil producers agreed to only modest
increases in production. Brent, the global benchmark, was down 1.7%
to $74.06 a barrel Monday.
Write to Jon Sindreu at jon.sindreu@wsj.com
(END) Dow Jones Newswires
June 25, 2018 08:48 ET (12:48 GMT)
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