Most European equities rebounded yesterday as investors bet on Beijing and Washington ending their trade war, mirroring earlier gains in Asia, but Wall Street investors seemed more sceptical of the chances for any 11th hour breakthrough.
The contrasting views reflected rattled investor nerves on the day the US doubled its tariffs on a host of Chinese goods, dealers said.
Paris and Frankfurt closed higher, while London ran into a late bout of selling to end a touch lower.
Paris’s CAC 40 was up 0.3 % at 5,327.44, Frankfurt’s DAX 30 gained 0.7 % to 12,059.83 and London’s FTSE 100 was down 0.1 % at 7,203.29 points at close yesterday.
Across the Atlantic meanwhile the Dow index was down by more than 300 points in the late New York morning.
“US stocks are extending a weekly drop, which is poised to be the largest of the year, with the US following through on its threat to increase tariffs on Chinese goods as the two sides continue talks today in Washington,” the Charles Schwab brokerage said.
In a brief respite from trade woes, Uber kicks off its Wall Street listing yesterday with a vast share offering that values the ride-hailing giant at more than $82bn.
US President Donald Trump has pulled the trigger on a steep increase in tariffs on Chinese goods, ramping up punitive duties on $200bn in imports from 10% to 25% in a major escalation of the bitter trade war between the world’s two biggest economies.
However, Russ Mould, investment director at stockbroker AJ Bell, said markets were adopting a wait-and-see approach – and he suspected that a deal would eventually be clinched.
“Investors hate uncertainty as it leads to speculation about what might and might not happen.
Once they have the real facts, investors can properly assess the situation,” Mould told AFP.
“I suspect that markets still believe a deal can and will be done, because both President Xi and President Trump need one,” he added.
The tariffs news failed to derail markets in Asia and Europe, after Trump stated also that he had received a “beautiful letter” from China’s President Xi Jinping – and that it was “possible” to get a deal.
“Xi needs a deal to keep economic growth on the road, because the ongoing credibility and legitimacy of his tenure and the Communist Party more generally rests on jobs and prosperity,” said Mould.
“Trump needs one because he seems to measure his success by where the Dow Jones Industrials is trading and because he has an election to fight in 2020.
“Winning that will be a lot harder if the US economy is slowing down or even turning down,” the analyst added.
In Asia, Shanghai led gains at the end of a torrid week for equities, with investors nevertheless keeping a eye on the ongoing China-US trade talks.
Both Shanghai and Hong Kong bounced back on hopes the economic superpowers will be able to reach a deal to avert a trade war that most observers warn could shatter global growth and batter markets.
But China has vowed to hit back at the tariffs hike, saying it “deeply” regretted the US move.
The tariffs came in after the first day of high-stakes negotiations in Washington between Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.
The slightly improved sentiment provided support to higher-yielding, riskier currencies, with the yuan edging higher though it continues to wallow around four-month lows.
However, in a worrying sign, Hu Xijin, editor-in-chief of the Global Times – which is published by the Communist Party’s People’s Daily – cited a source familiar with the talks as saying there is “zero” chance of a deal before yesterday.
“If it is that bad, the real suspense is whether the two sides will continue negotiations after Friday,” Hu said.
In addition to a rosier view on trade talks, European markets also got a boost from strong economic data, including accelerated British economic growth, and a stronger trade surplus for Germany.
Frankfurt’s Dax index outperformed its European peers largely thanks to a whopping surge in Thyssenkrupp shares which rose over 20% after the steel conglomerate said it was dropping its merger plans with Tata of India.
Meanwhile, the British pound was little changed yesterday after data showed the UK economy got a boost ahead of a Brexit that never came, with traders doubtful Prime Minister Theresa May can reach a deal with the opposition on how to leave the European Union.
Sterling did rise towards the end of the European trading session, but that was largely down to broad dollar weakness.
Britain’s economy grew at a quarterly rate of 0.5% in the first quarter of 2019, in line with the reading expected by the bank of England, as well as by private-sector economists in a Reuters poll.
Business surveys have shown manufacturers built up stocks of goods in case the country left the UK without a transition deal at the end of March.
Year-on-year GDP growth picked up to 1.8% in early 2019 from 1.4% in the last three months of 2018, Britain’s Office for National Statistics said on Friday. This was its highest since the third quarter of 2017 and again in line with economists’ forecasts.
Momentum in the British economy has been stymied by uncertainty related to how and when Britain will leave the EU, with business investment suffering. But the economy has also proven resilient, with British consumers continuing to spend and manufacturers rushing to deliver orders before the initial Brexit deadline of March 29.
The government delayed the Brexit date until end of October as it continues talks with the opposition Labour Party to agree a deal that can muster sufficient support from lawmakers that have repeatedly rejected May’s withdrawal agreement.
Sterling rose 0.2% to $1.3035, cutting its week-to-date losses so far to around 1.1%, although analysts were doubtful the pound’s move higher yesterday had legs.
Against the euro the British currency dropped 0.1% to 86.30 pence.
Traders work at the Frankfurt Stock Exchange. The DAX 30 gained 0.7 % to 12,059.83 points yesterday outperforming its European peers largely thanks to a whopping surge in Thyssenkrupp shares which rose over 20% after the steel conglomerate said it was dropping its merger plans with Tata of India.
