NEW YORK (REUTERS) – Global stocks fell on Tuesday (Oct 8) as US-China tensions rose further ahead of high-level trade talks, while the British pound sank on reports that Brexit negotiations were close to breaking down.
Gold and the yen rose, indicating an increased appetite for safe-haven assets.
Wall Street stocks closed at session lows after Washington imposed visa restrictions on Chinese government and Communist Party officials over abuses of Muslim minorities. The move came only hours after the Trump administration widened its trade blacklist to include some of China’s top artificial intelligence start-ups.
High-level talks between the world’s top two economies on trade are due to resume on Thursday. The negotiations, the stock market’s most important catalyst for months, have weighed on investor sentiment.
“The headlines are painting a picture of a less optimistic tone to the trade talks this week,” said John Zaller, chief investment officer of MAI Capital Management in Cleveland. “Anything less than a tariff delay would be a pretty big disappointment for the markets.”
An increase to 30 per cent from 25 per cent in US tariffs on US$250 billion worth of Chinese goods is scheduled for Oct 15.
GLOBAL GROWTH CONCERNS
The US Treasury yield curve steepened, driven by a falling two-year yield after Federal Reserve Chairman Jerome Powell flagged openness to further rate cuts and said the Fed would expand its balance sheet to ensure money markets function smoothly.
Benchmark 10-year Treasury notes last rose 6/32 in price to yield 1.534 per cent, from 1.553 per cent late on Monday.
Markets have been waiting for the Fed to put in place policies to avoid the sort of reserve shortages that occurred recently and could disrupt the Fed’s policy goals if they were to become a regular feature of financial markets.
Despite expectations for lower rates, the US dollar rose against a basket of six peers. The dollar index rose 0.17 per cent, with the euro down 0.15 per cent to US$1.0953.
The pound tumbled after reports that Brexit talks between Britain and Brussels were close to breaking down. Sterling last traded at US$1.2212, down 0.63 per cent on the day.
The EU accused Britain of playing a “stupid blame game” after a Downing Street source said a deal was essentially impossible because German Chancellor Angela Merkel had made unacceptable demands.
The safe-haven yen strengthened 0.21 per cent versus the greenback at 107.08 per dollar.
The Turkish lira gained 0.06 per cent versus the US dollar at 5.83 after falling more than 2 per cent on Monday.
Meanwhile in Washington, the new IMF Managing Director Kristalina Georgieva said trade tensions could mean a loss of around US$700 billion to the world economy by 2020, or about 0.8 per cent of global GDP.
Worries over the health of the world economy sent oil prices lower even as anti-government protests resumed overnight in Iraq, OPEC’s second-largest producer.
US crude fell 0.34 per cent to US$52.57 per barrel and Brent was last at US$58.17, down 0.31 per cent on the day.
“The market’s focus remains on trade tensions and oil demand concerns, ignoring the elevated geopolitical tensions in the Middle East and lower OPEC production in September,” said UBS oil analyst Giovanni Staunovo. “Growing recession risks have capped the upside of oil prices.”
The US Energy Information Administration cut its 2020 world oil demand growth forecast by 100,000 barrels per day to 1.30 million bpd, or about 7 per cent.
Spot gold added 0.8 per cent to US$1,505.47 an ounce. US gold futures fell 0.02 per cent to US$1,497.20 an ounce.