New year stocks rally stalls as trade talks and data disappoint

LONDON (Reuters): The early-year rally in world stocks ran out of steam in Europe yesterday and the dollar touched a near three-month low, as mixed signals from US-China trade talks and caution at the Federal Reserve applied the brakes.

China said the three days of talks in Beijing had established a “foundation” to resolve differences, but gave virtually no details on key issues at stake.

A slew of weak data also dampened the mood. Again in China, factory-gate inflation was the slowest in more than two years, while worse-than-expected industrial figures in France provided more evidence that Europe is spluttering again. The pan-European STOXX 600 index lost 0.4% as Paris dropped 0.8%, Germany’s trade-sensitive DAX dipped and Britain’s FTSE also fell as Brexit confusion continued to reign.

Wall Street futures were in the red, putting the S&P 500, Dow Jones Industrial and Nasdaq on course for their first drop in five days.

The soured sentiment saw the standard move into safe-haven government bonds that give a guaranteed return. Yields on German and French and government bonds – which move inversely to price – dropped toward recent two-year lows. 

The European Central Bank will publish the minutes from its December meeting later, where it formally shut the mass bond buying program it has been using in recent years.

The US Treasury yields last stood at 2.697%, down from 2.710% on Wednesday when Fed minutes showed policymakers were becoming more cautious about future rate hikes.

The dollar remained flat after hitting its lowest level since mid-October.

It was barely changed at $ 1.1556 to the euro, which had gained 0.9% against the dollar during the previous session, its biggest one-day gain since late June.

China’s yuan also muscled higher, breaching the 6.8 per dollar level for the first time since August in both onshore and offshore trade in Asia.

Asian shares had performed fractionally better overnight on the weaker dollar and hopes of more economic stimulus in China.

But many stocks seesawed, and Tokyo and Shanghai both closed lower as markets resolved the trade talks and hoped that they will ultimately avert another ramping-up of US tariffs in March.

Emerging market bond investors then got a major jolt as Lebanon’s Finance Minister Ali Hassan Khalil told a local newspaper that it was weighing up a debt restructuring. Goldman Sachs had warned this week that such a move, if extreme enough, could potentially wipe out Lebanon’s banks.

Lebanon has the third largest public debt-to-GDP ratio in the world at around 150%.