US-China trade war keeps global stock markets on their toes

Uncertainty about the fate of the trade negotiations between the United States and China kept markets on their toes on Friday, with European stocks benchmarks mimicking their Asian peers and retreating from the previous session’s highs.

Overnight on Wall Street, the Dow and S&P 500 reached record closing highs on hopes of a truce to end the damaging tariff war but a Reuters report that the White House opposed aspects of a tentative deal limited the day’s gains.

The pan-European STOXX 600 opened down 0.4% at 405 points, 10 ticks from its April 2015 record of 415. S&P 500 futures retreated 0.1% after the New York benchmark hit its highest closing level ever on Thursday.

“The trade deal is the predominant driver”, for markets at the moment said Lars Kreckel, global equity strategist at Legal & General Investment Management, noting that this morning dip in market was a just knee-jerk reaction to the latest news on the US-China front.

The mood contrasts with Thursday’s surge of optimism in global markets on news Beijing and Washington had agreed to roll back tariffs as part of a first phase of a trade deal.

Worries the pact could fall apart are now prompting some investors to sell heading into the weekend.

Chris Jeffery, head of rates and inflation at the British financial service group said the “background music” to the trade row, a Federal reserve easing monetary policy and macroeconomic indicators stabilising had helped the recent rally.

Germany’s DAX, a gauge of investors’ sentiment on trade, moved in synchronicity with the rest of the market and eased 0.4%.

German exports posted their biggest rise in almost two years in September, data showed on Friday, providing some relief amid widespread concern that Europe’s largest economy will dip into recession in the third quarter.

“Market participants are getting increasingly ‘long’ on good news”, said Stephen Gallo, European head of FX strategy at Canadian bank BMO.

“The ‘payback’ in risk assets for a very downbeat picture earlier in the year looks unstoppable at the moment”, he added.

In the meantime, crude oil futures fell amid lingering uncertainty over the long-awaited deal and rising crude inventories in the United States.

Brent crude, the global benchmark, was down 16 cents, or 0.3%, at $62.13 a barrel by 0259 GMT, after gaining 0.9% in the previous session.

US West Texas Intermediate (WTI) crude CLc1 was down 56 cents, or 0.9%, at $61.73 a barrel. The contract rose 1.4% on Thursday.

Safe haven gold, which tends to rise during times of uncertainty, was a tad firmer, up 0.1% at $1,469.4 per ounce, having hit a five-week low of $1.460.7 on Thursday.

Moves in the currency market were restrained.

The dollar was treading water at 109.32 yen, after reaching a five-month high of 109.49 the previous day. The euro was steady at $1.1050 as was the dollar index unchanged at 98.154 after hitting three-week highs of 98.236 on Thursday.

A Reuters poll found that the dollar’s persistent strength would continue well into next year.

Gold prices inched lower on Friday and were on track for their biggest weekly decline in 2-1/2 years as a stronger dollar weighed, while optimism around U.S.-China trade talks dented bullion’s safe-haven appeal.

Spot gold was down 0.1% at $1,465.97 per ounce at 1101 GMT, poised for its biggest weekly drop - about 3% - since May 2017. On Thursday, prices fell to their lowest since Oct. 1 at $1,460.75. US gold futures were steady at $1,466.90. “Gold is down because the dollar is doing well and some people who bought gold as a safe haven are moving out,” ABN Amro analyst Georgette Boele said. “You will get some profit-taking pushing gold prices lower.” The dollar index was headed for a weekly gain as it benefited from news that China and the United States had agreed to roll back tariffs as part of a potential preliminary pact to end their trade war.

However, some doubts emerged as officials inside and outside the White House opposed the notion of giving up punitive tariffs. The uncertainty limited bullion’s fall.

“We are trading on a lot of speculation right now and there’s no solid evidence or anything specific,” Craig Erlam, OANDA senior market analyst, said, adding gold could move back to $1,440 if a phase 1 trade deal were signed next month.

Meanwhile, European stocks benchmarks retreated from the previous session’s highs as conflicting signals from China and the United States on progress made in trade talks deflated market hopes of a near-term truce.

Reflecting sentiment, holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, dipped 0.16% to 914.38 tonnes on Thursday.

“While subdued global economic growth and low interest rates should keep gold prices elevated, positive developments for gold have now largely played out,” analysts at Capital Economics said in a note, as it raised its end-2020 gold price forecast to $1,450 per ounce, from $1,350.

Gold prices have risen more than 14% so far this year mainly due to the trade war.

Elsewhere, silver dropped 0.8% to $16.97 per ounce, and was set to fall more than 6% for the week, its steepest drop since October 2016.

Platinum fell 1.16% to $897.94 per ounce, poised for a 5% drop for the week.

Reuters