Stock markets mostly slid yesterday as traders reacted to fading US-China trade deal hopes, renewed unrest in Hong Kong, a stronger pound and political impasse in Spain.
After heavy falls in Asia, Europe headed south with London’s benchmark FTSE 100 index shedding 0.6% at 7,359.38 points. Frankfurt’s DAX 30 ended 0.5% down at 13,228.56 points and Paris’ CAC 40 closed flat at 5,889.70 points, while the EURO STOXX 50 ended 0.2% down at 3,699.65 points.
Wall Street also retreated from record highs, with the Dow down 0.4% in late morning trading.
“Stock markets are largely lower as traders are worried about the US-China trading relationship as well as the violence in Hong Kong,” said David Madden, analyst at traders CMC Markets UK.
The pound was up around three-quarters of a percentage point versus the dollar, adding further downward pressure to the FTSE 100 that features several multinationals earning in the US unit.
Sterling climbed also against the euro, as official data showed Britain had dodged a recession in the third quarter with growth of 0.3% and the ruling Conservatives of Prime Minister Boris Johnson received a major electoral boost.
“The pound was given a boost by Nigel Farage’s announcement that the Brexit party won’t stand in the 317 seats currently occupied by the Conservatives,” said Oanda analyst Craig Erlam.
Farage, a leading force behind the 2016 referendum vote to leave the European Union, had faced criticism that he risked splitting the eurosceptic vote on December 12 if his party ran candidates in constituencies currently held by the Conservatives.
In the eurozone, Madrid’s IBEX 35 index spent most of the day lower after Socialist premier Pedro Sanchez emerged as winner but weakened from Sunday’s repeat election.
The vote also propelled the far-right Vox into third place in a result set to deepen years of political turmoil in Spain, a leading member of the eurozone.
The IBEX 35 moved into positive territory in the final minutes of trading, ending the day with a gain of less than 0.1%.
European markets took “the cue from Asia, whilst political deadlock in Spain is not a help”, said Neil Wilson, chief market analyst at Markets.com.
Asian markets turned sharply lower yesterday as another record close on Wall Street on Friday was overshadowed by uncertainty on the China-US trade talks, while Hong Kong was hit also by fresh protests in which at least one person was shot.
Expectations Beijing and Washington will agree a mini-pact have fuelled an equity rally for the past few weeks.
Hopes had been given an added boost Thursday after China said the two sides had agreed to roll back some tariffs as the negotiations progress.
But the US side sent out some confusing signals after that announcement, before US President Donald Trump denied such an agreement, leaving investors scratching their heads.
Still, White House trade adviser Peter Navarro provided a lift to sentiment, saying Trump could postpone tariffs on Chinese goods scheduled to take effect in December.
The S&P 500 and Dow both ended at fresh all-time highs Friday.
“The China-US trade war and the Hong Kong protest are combining to cast a negative pall on Asian markets today,” said James McGlew, analyst at stockbroking firm Argonaut.
“Hong Kong protests have been dragging on for a while and the view from the financial world is that it’s really starting to bite now. The further this drags on it’s certainly going to be very negative.”
Gold, which rises during times of uncertainty, rebounded from a three-month low touched on Friday to be last up 0.3% at $1,462.11 an ounce.
In currencies, the Japanese yen gained on the dollar to 109 while the Australian dollar, a liquid gauge for risk, was off slightly at $0.6856.
The dollar index was a touch softer at 98.301 while the euro ticked up to $1.1024.
US President Donald Trump told reporters on Saturday that talks with China had moved more slowly than he would have liked, but added that Beijing wanted a deal more than he did.
That was a more upbeat tone than just a few days earlier when he had stressed that the White House would not agree to a full rollback of existing tariffs, remarks that hit stock prices and the dollar.
“Despite his bluster that ‘China wants a trade deal more than I do’, markets sense that Trump is likely quite keen to call a truce on what is becoming a serious US economic risk heading into the 2020 election year,” said David Bassanese, Sydney-based economist at Betashares.
By the close of Wall Street on Friday, optimism had returned to the market as investors bet that Washington needs a deal and it is in the interest of China, too. All three major US indexes eked out record closing highs.
“It will be the US-China trade talks that will continue to dictate the daily swings in sentiment this week,” said Jeffrey Halley, senior analyst at OANDA.
He noted the negotiations were “starting to drag on in a disturbingly Brexit-like manner,” referring to Britain’s divorce deal with the European Union which is still up in the air almost three years after the country voted to leave the bloc.
US officials said a lot of work remained to be done when Trump announced the outlines of an interim deal last month, and Beijing has since pushed back on US demands for big agricultural purchases, among other issues.
Analysts said the outlook for equities was highly dependent on US economic data as a US-China trade agreement would help bolster manufacturing and industrial sectors.
Data on October US industrial production and retail sales, along with the National Federation of Independent Business’s monthly small business survey, are scheduled for release this week.
In commodities, benchmark Brent crude fell 51 cents to $62.00 a barrel while West Texas Intermediate (WTI) crude slipped 46 cents to $56.78 a barrel.
Visitors pass a sign inside the London Stock Exchange Group headquarters. The FTSE 100 index closed 0.6% down at 7,359.38 points yesterday.
