Stocks drop as trade stress simmers; Lira rallies: markets wrap

A pedestrian is reflected in an electronic stock board outside a securities firm in Tokyo, Japan. (Bloomberg pic)

LONDON: European stocks and US equity futures followed Asian shares lower amid seemingly gloomy prospects for global trade. Turkey’s currency surged after Recep Tayyip Erdogan won a mandate to govern with sweeping new powers.

The Stoxx Europe 600 Index declined as every industry sector fell, with futures on the Dow Jones and S&P 500 indexes pointing to a lower open. Equities in Shanghai and Hong Kong led a retreat in Asia in the wake of reports the Trump administration is preparing new curbs on Chinese investments. China’s shares and currency fell after an announcement Sunday it would free up more than US$100 billion (RM400 billion) in the banking system to help cushion a slowing economy, a move that was anticipated. Treasuries climbed and emerging-market equities slid, in another sign of a risk-off impulse.

While the People’s Bank of China will cut the amount of cash some lenders must hold as reserves, unlocking about 700 billion yuan (US$108 billion) of liquidity, markets haven’t shown a positive response because not only was it well-flagged, it reflects officials’ concern over the economy and trade outlook. The move comes into effect one day before the first round of US tariffs on Chinese goods begin, fueling trade tensions between the world’s two-largest economies, even as stress increases between the US and its European trade partners.

“This one could well result in an escalating trade war,” Lee Ferridge, a macro strategist at State Street Corp., told Bloomberg TV in Hong Kong. “Volatility is going to continue to rise from here.”

In the first of a series of key elections in emerging markets, Erdogan claimed a mandate to govern in Turkey. He had 53% of the presidential vote to 31% for his closest challenger, with 99% of ballots counted, the government news agency Anadolu said.

These are key events coming up this week:

German Chancellor Angela Merkel holds private talks with leaders of the other parties in her coalition government on refugee policy and euro-area reforms in Berlin Tuesday. New Zealand and Indonesia monetary policy decisions on Thursday. US personal spending probably increased in May for a third month, economists forecast ahead of Friday’s data. China manufacturing and non-manufacturing PMI are due on Saturday.

Here are the main market moves:

Stocks
The Stoxx Europe 600 Index dipped 1% as of 10.01 am London time. Futures on the S&P 500 Index fell 0.6% to the lowest in more than three weeks. The MSCI All-Country World Index declined 0.3%. The UK’s FTSE 100 Index decreased 0.8%.

Currencies
The Bloomberg Dollar Spot Index gained less than 0.05% to 1,181.06. The Japanese yen gained 0.4% to 109.48 per dollar, the strongest in more than three weeks on the biggest rise in almost four weeks. The euro advanced 0.1% to US$1.166, the strongest in more than a week. The British pound decreased 0.1% to US$1.3242. The Turkish lira advanced 1.3% to 4.6179 per dollar, the strongest in almost two weeks on the largest gain in more than two weeks.

Bonds
The yield on 10-year Treasuries fell two basis points to 2.88%, the lowest in more than three weeks. Germany’s 10-year yield declined two basis points to 0.32%, the lowest in almost four weeks. Britain’s 10-year yield decreased three basis points to 1.291%.

Commodities
Gold declined less than 0.05% to US$1,270.08 an ounce. Brent crude decreased 1% to US$74.81 a barrel. LME copper advanced 0.2% to US$6,801.50 per metric ton.