European markets rebound as US-China trade war fears fade

Stock markets on both sides of the Atlantic staged a fightback yesterday, paring heavy losses sparked by a raging US-China trade war over the past week. World oil prices bobbed higher on concerns about tensions in the crude-rich Middle East, dealers said. “Equities are attempting to claw back some lost ground,” noted analyst Chris Beauchamp at trading firm IG, “but the overall atmosphere of caution still prevails”. On Wall Street the Dow had regained 320 points, or 1.3%, by the late morning, having lost a whopping 2.4% on Monday. The tech-heavy Nasdaq, which had plunged 3.4% Monday, was also 1.3% higher at that time. “US stocks are recovering from Monday’s drop in early action, which was the largest one-day fall since January, with the escalated trade tensions between the US and China continuing to be eyed,” Charles Schwab analysts said.

They added, however, that President Donald Trump’s statement that a meeting next month with Chinese President Xi Jinping would be “successful” gave investors some hope for a peaceful resolution of the trade standoff. Europe’s main stock markets were all higher at the close, with Paris the best performer. London’s FTSE 100 jumped 1.1% to 7,241.60 points, Frankfurt’s DAX 30 gained 1% to 11,991.62 and Paris’s CAC 40 rose 1.5% to 5,341.35 points at close yesterday. Earlier yesterday Asian markets had plunged further in reaction to Monday’s US stock plunge, seen after China hiked tariffs on $60bn of US imports. That has ramped up sizzling tensions in a trade war between the world’s two biggest economic powers.The latest move by Beijing was followed by a warning of further action such as dumping US Treasuries and came days after Washington more than doubled levies on $200bn of Chinese goods and Trump said he was looking at more than $300bn more.


Traders work at the London Stock Exchange. The FTSE 100 jumped 1.1% to 7,241.60 points yesterday.

“Ironically of course the tariffs imposed by both sides will hit consumers, so as in all great contests this is turning into a test of endurance, with the US and China each looking to derive the maximum impact from the increased charges in a bid to hit their opponent where it hurts,” said Beauchamp. The China-US trade conflict has sent shockwaves across trading floors, where most dealers had a little over a week ago been confident the two sides were close to a deal. After announcing the higher tariffs, the editor of the Communist Party-owned Chinese newspaper Global Times warned Beijing could also hit the US by offloading Treasuries, ending US agricultural purchases and reducing orders for Boeing airplanes. However, while there is a lot of fear about an all-out trade war, which could batter the world economy, both said talks will continue, though no date has been set for the next round.

Also, Trump said he had a feeling talks with China will be “very successful” and that he intended to meet his Chinese counterpart at next month’s G20 summit. Elsewhere, oil prices advanced yesterday as traders eyed Middle East woes, “sabotage attacks” on two Saudi Arabian oil tankers, and a growing crisis in Venezuela. Yesterday, drone attacks claimed by Iran-aligned Yemen rebels also shut down one of Saudi Arabia’s main oil pipelines. Meanwhile, sterling hit a new two-week low yesterday as British employment data showed wage growth in the quarter ending March was lower than expected, signalling the possible start of a turbulent period for the broader economy. Wages in Britain had grown at strong rates over the past year or so but slowed to 3.2% in the first quarter of 2019, data showed, lower than predictions of 3.4% and down from the previous reading of 3.5%.

The data also showed employment growth slowed to 99,000, well below a median forecast of 135,000 in a Reuters poll of economists. Sterling slipped yesterday to a two-week low of $1.2909, down 0.3% on the day. It was also slightly down against the euro at 86.80 pence. “UK wage growth is close to post-crisis highs, but some tentative early warning signs suggest that the jobs market is entering a turbulent period,” said James Smith, an economist at ING. ING economists do not expect a rate hike from the bank of England this year, even though recent comments from Governor Mark Carney suggest a November move should not be ruled out. The bank of England has said in the past that a rate hike would be contingent on strong wage growth pushing up inflation. Money markets expect one rate hike in the first half of 2020.

Any further hits to wage growth and employment numbers could also be a sign that British businesses are hurting from uncertainty over Brexit, analysts said. While most economic data in Britain has been solid in recent months even in the face of messy EU divorce proceedings, the worry for investors is that months of inventory stockpiling by British firms could show up this quarter. On Brexit, Labour’s second most powerful man, finance chief John McDonnell, said a customs union was absolutely key for the party and there was not yet a deal. This led some to conclude that a cross-party deal between Labour and the Conservatives is looking even more unlikely. “Him saying that a customs union is key for a compromise deal to be reached further highlights that these talks are going to ultimately fail,” said Lee Hardman, a currency analyst at MUFG Securities. “This weekend we have the upcoming EU elections which are expected to deliver another damning verdict on the government’s popularity.” The British currency is also being dragged lower by the broader environment, with trade tensions between the United States and China hurting stocks. “Given the overriding environment, interest rates on the floor, and even if we have got a slightly firmer wages number, we could see a brief counter-trend move here in sterling and sterling interest rates because of the overall environment,” said Chris Turner, head of FX strategy at ING.

Sources and photo-credits: AFP, Reuters, Gulf Times