Trade tensions pause stocks rally

[November 27, 2018]   By Ritvik Carvalho

LONDON (Reuters) - World stock markets fought to keep a rebound alive on Tuesday after U.S. President Donald Trump seemed to quash hopes of a trade truce with China, clouding what had been a bright start to the week.

European markets opened subdued, but dipped as trading progressed, with the pan-European STOXX 600 benchmark last down 0.4 percent, pulling back from a one-week high hit in the previous session.

Asian markets put on a brave face, with Japan's Nikkei <.N225> adding 0.64 percent and Chinese blue chips <.CSI300> down 0.1 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was last up 0.3 percent. E-Mini futures for the S&P 500 <ESc1> dipped 0.3 percent, indicating a lower open on Wall Street.

The MSCI All-Country World Index <.MIWD00000PUS>, which tracks shares in 47 countries, was flat on the day.

In an interview with the Wall Street Journal, Trump said he expects to raise tariffs on $200 billion in Chinese imports to 25 percent from 10 percent currently. He said it was "highly unlikely" he would accept China's request to hold off on the increase, planned for Jan. 1.

The comments ran counter to recent speculation about a possible deal when Trump meets Chinese President Xi Jinping at the G20 summit in Buenos Aires later this week.

"The upcoming meeting between Trump and Xi is pivotal going into the year-end and for the outlook for global growth, which has shown signs of slowing," said Lee Hardman, a currency analyst at MUFG in London.

"If there's no breakthrough, that makes it more likely that more tariffs will be imposed, and that increases downside risks to trade."

The news initially put trade-sensitive currencies, including the Australian dollar <AUD=D3>, on the defensive, although it climbed back into positive territory in European trade. The dollar was flat against the yen at 113.585 <JPY=EBS>

The index that measures the dollar against a basket of other currencies <.DXY> was up 0.1 percent. [FRX/]

Sterling was weaker across the board after Trump said on Monday the agreement allowing the United Kingdom to leave the European Union may make trade between Washington and London more difficult. [GBP/]

"We are seeing a greater degree of stability in sterling, but it went below recent ranges on Trump's comments," said Neil Mellor, currency strategist at Bank of New York Mellon in London. "Those remarks do not tell us anything we didn't know already but the market is trading on headlines at the moment."
 

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, November 26, 2018. REUTERS/Staff

The euro edged lower to $1.13235 <EUR=>.

OIL SHIFTS RISKS ON INFLATION, FED

Shares in Apple Inc <AAPL.O> fell after hours in reaction to Trump's comments that tariffs could also be placed on laptops and iPhones imported from China.

Trump's remarks came just as the mood among investors had shown signs of brightening and Wall Street took heart from an upbeat holiday shopping period.

The Dow <.DJI> had ended Monday up 1.46 percent, the S&P 500 <.SPX> gained 1.55 percent and the Nasdaq <.IXIC> 2.06 percent.

The rally came after the S&P 500 on Friday recorded its lowest close in six months, down more than 10 percent from September's peaks and back in "correction" territory.

In commodity markets, oil prices steadied, depressed by record Saudi Arabian production but supported by expectations that oil exporters would agree to output cuts at an OPEC meeting next week.

U.S. crude <CLc1> was up 0.1 percent at $51.68 a barrel, while Brent <LCOc1> futures rose 0.2 percent to $60.60.

Analysts at National Australia Bank noted the 30 percent drop in oil since early October would drag on U.S. inflation in coming months, perhaps offering further reason for the Federal Reserve to go slower on tightening.

"This is a starkly different picture to just a few months ago," said NAB's market strategist Tapas Strickland. "A stable to lower inflation outlook means there is no urgency for the Fed to hike rates. An early 2019 pause is thus becoming more probable."

The futures market <0#FF:> has already shifted to imply two more hikes at most next year. The Fed itself is predicting three, and more in 2020.

Hints on rate moves may come from Fed Vice Chairman Richard Clarida, who speaks later on Tuesday, and Chair Jerome Powell, who will make an appearance the day after.

(Reporting by Ritvik Carvalho; additional reporting by Dhara Ranasinghe in Lonon and Wayne Cole in Sydney; editing by Larry King and Angus MacSwan)

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