World stocks capped by trade war concerns, central banks

Thursday, 14 June 2018 00:00 - - {{hitsCtrl.values.hits}}

LONDON (Reuters) - World stocks hovered near one-month highs on Wednesday as an expected U.S. interest rate rise and risks of a fresh outbreak of trade tensions between China and the United States overshadowed a generally benign political and economic backdrop.

Wall Street appeared set for a modestly firmer open, potentially building on the previous session’s gains, which were fuelled by buoyant mergers and acquisitions activity among media and telecoms firms .

European shares rose too as global company earnings have been revised up, according to Thomson Reuters I/B/E/S.

However, assets such as Chinese stocks, European autos and the Mexican peso are under pressure from the risk of protectionist measures from the United States which is preparing to unveil more tariffs on $50 billion worth of Chinese goods.

And the U.S. Federal Reserve, the European Central Bank and the Bank of Japan all hold policy meetings this week, with the Fed expected to announce its second rate rise of 2018.

Equity markets are “marking time and finding it difficult to make upward progress despite reasonably good economic data”, said Andrew Milligan, head of global strategy at Aberdeen Standard Investments. “We are entering three days of important central bank decisions. Markets have pretty much priced what (the banks) will do and it is clear we are in a monetary policy tightening cycle.”

These issues eroded slim gains made around Tuesday’s summit between U.S. President Donald Trump and North Korean leader Kim Jong Un. The meeting has soothed some geo-political fears, as a joint statement pledged to work toward the “denuclearization” of the Korean Peninsula.

MSCI’s all-country share index was flat, recovering slightly from deeper losses caused by a half% fall in non-Japan Asian equities.

European stocks too were 0.3% higher after a weak start, led by a 1.4% rise in the tech index and an 80% leap in Dutch fintech firm Adyen on its first day of trading.

An index of auto stocks lagged, however, with gains of 0.2%.

Milligan downplayed the impact of U.S. trade measures on global commerce but noted “the direction of travel is not positive, which is why equities are not making as much progress and investor sentiment is not more positive.”

Investors see trade wars as the biggest market risk, a closely watched survey from Bank of America Merrill Lynch (BAML) showed. It showed investors bullish on equities but still holding high levels of cash in portfolios -- a clear sign of wariness.

In a reminder of the danger of trade disputes, shares in Chinese telecommunications giant ZTE Corp fell as much as 41.5%, wiping $3 billion off its market value, as it resumed trade after agreeing to pay up to $1.4 billion in penalties to the U.S. government. Its Shenzhen shares fell by their 10% limit, dragging down mainland Chinese shares around 1%

The Mexican and Canadian currencies, remained under pressure from trade war fears, the former hitting 16-month lows against the U.S. dollar. Investors see central bank policy mistakes as the second-biggest risk for markets, the BAML poll showed.