Stock markets slide on trade truce scepticism

A monitor displays stock market information on the floor of the New York Stock Exchange. (Bloomberg pic)

LONDON: Stock markets lost ground Tuesday amid growing trader scepticism on the reality of a China-US trade truce.

“The market’s post-G20 swagger proved short-lived, with Asia, and then Europe, drifting into the red as investors considered the realities of the US-China trade war truce,” said Spreadex analyst Connor Campbell.

After Monday’s initial strong gains Tuesday saw Wall Street follow an unimpressive lead from Asia which saw Tokyo shed 2% while Hong Kong and Shanghai crept barely into the green.

A few minutes after the opening bell, the Dow Jones index was off 0.7% at 25,632.17 points.

The dollar meanwhile weakened for a second straight day as sterling benefited from a finding by the legal advisor to the EU’s top court indicating Britain could decide to unilaterally reverse the country’s “Article 50” EU withdrawal notification.

The case was referred to the ECJ by a Scottish court and hinges on whether the British parliament could simply revoke the process.

EU countries can unilaterally end a divorce from the bloc, Advocate General Campos Sanchez-Bordona said.

Judges at the ECJ usually follow the legal opinions of the court’s advocate general and a ruling is expected as early as this month.

On the wider picture of to what degree Beijing and Washington have managed to ramp down trade tensions in the short to medium term, US President Donald Trump said talks to resolve the dispute have begun already and will last for 90 days — unless they are extended.

Trump and China’s leader Xi Jinping agreed last weekend in Buenos Aires to work towards an agreement to roll back tariffs on hundreds of billions of dollars in two-way trade.

Trump tweeted an extension was possible, writing that “the negotiations with China have already started. Unless extended, they will end 90 days” from last Saturday, when he and Xi seemed to be unveiling a truce in their tariffs war.

Lukman Otunuga, Research Analyst at FXTM, suggested that “although there seems to be a sense of uncertainty” on just what has been agreed “investors still remain cautiously optimistic over trade tensions easing in the short to medium term.”

Elsewhere, oil prices extended recent gains, fuelled by a Russia-Saudi Arabia pact to cap output.

Warm fuzzy feeling

Trump’s trade campaign against China has led to fears that the issue will hit global growth.

“Can the US and China really resolve their differences in 90 days?” Rodrigo Catril, senior strategist at National Australia Bank, asked earlier.

“It seems that more details and signs of progress will be needed if the initial trade truce warm fuzzy feeling is to be sustained.”

There was also uncertainty Tuesday about Trump’s claims in a tweet that China had agreed to slash tariffs on car imports, with two advisers unable to provide clarity.

Cat among Brexit pigeons

Britain’s Brexit quagmire is coming to a head as lawmakers debate Prime Minister Theresa May’s exit deal over the next five days and although the pound pushed as high as $1.2840 on the ECJ’s Article 50 finding, traders remain sceptical about the outcome as MPs debate Prime Minister Theresa May’s Brexit deal in the coming days.

May, who is struggling to win over enough people to support the agreement, also faces a row over her government’s refusal to publish its legal Brexit advice.

“The top advisor to the ECJ threw a cat among the Brexit pigeons, saying that Britain can decide to withdraw its decision to leave the EU without needing the permission of the other member states,” noted analyst Fiona Cincotta at City Index.

Key figures around 1500 GMT

New York – Dow Jones: DOWN 0.7% at 25,632.17

London – FTSE 100: DOWN 0.4% at 7,030.74 points

Frankfurt – DAX 30: DOWN 0.7% at 11,381.88

Paris – CAC 40: DOWN 0.5% at 5,027.20

Milan – FTSE MIB – DOWN 0.7% at 19,488.90

EURO STOXX 50: DOWN 0.3% at 3,204.50

Tokyo – Nikkei 225: DOWN 2.4% at 22,036.05 (close)

Hong Kong – Hang Seng: UP 0.3% at 27,260.44 (close)

Shanghai – Composite: UP 0.4% at 2,665.96 (close)

Oil – West Texas Intermediate: UP 38 cents at US$53.15 per barrel

Oil – Brent Crude: UP 64 cents at US$62.33

Euro/dollar: UP at $1.1394 from $1.1354 at 2200 GMT

Dollar/yen: DOWN at 112.86 yen from 113.66

Pound/dollar: UP at $1.2762 from $1.2725