World shares fall as Hong Kong violence unnerves investors

[November 11, 2019]  By Tom Wilson

LONDON (Reuters) - Shares across the globe fell on Monday, buffeted by escalating violence in Hong Kong that pushed Asian stocks to their worst day since August and stoked demand for the safe-haven yen and gold.

In the 24th straight week of pro-democracy unrest, Hong Kong police shot and wounded a protester as the Chinese-ruled territory saw rare working-hours violence.

The MSCI world equity index <.MIWD00000PUS>, which tracks shares in 47 countries, slipped 0.2%, with Hong Kong's Hang Seng index <.HSI> falling 2.7% and leading losses across Asia.

There, MSCI's widest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell 1.2% from six-month highs to set a course for its worst day since late August. Chinese blue chips <.CSI300> dropped 1.8%.

The nerves spread to Europe, too.

The broad Euro STOXX 600 <.STOXX> fell 0.2%, with London shares <.FTSE> slipping 0.6% ahead of British GDP data. Wall Street futures gauges were also set to suffer, suggesting losses of around 0.4%.

Some investors said markets risked being hit by any further escalation of the violence in Hong Kong, where protesters are angry about what they see as police brutality and meddling by Beijing in the freedoms guaranteed to the former British colony.

"At some stage I think it will be likely that there will be a more fully-fledged crackdown," said Stéphane Barbier de la Serre, a strategist at Makor Capital Markets.

"And if you see a crackdown, you could see markets collapsing. For these reasons markets are complacent."

The violence in Hong Kong sent investors running for assets perceived as safe havens and away from riskier currencies.

Gold <XAU=> rose 0.4%, rebounding from a three-month low touched on Friday to reach $1,463.49 per ounce.

The Japanese yen, which often strengthens in times of global political or economic turmoil, strengthened 0.3% against the dollar. China's yuan, in contrast, weakened 0.3% to 7 per dollar in offshore trade.

TRADE WAR

Investors were also focused on the U.S-China trade talks.

After a bout of optimism last week over prospects for Washington and Beijing to reach an initial deal that would quell the worst of the 18-month old dispute, doubts over prospects for a resolution gnawed again.

A passerby walks past in front of a stock quotation board outside a brokerage in Tokyo, Japan, May 10, 2019. REUTERS/Issei Kato

On Saturday, U.S. President Donald Trump said talks with China had moved more slowly than he would have liked. Trump said reports that the United States was willing to lift tariffs were incorrect, adding that Beijing wanted a deal more than he did.

Still, some market players said Trump's comments fitted an established pattern of optimistic rhetoric from the U.S. president being followed by a more skeptical tone.

A deal was still likely, they said.

"It's the usual two steps forward and one step backwards," said Adam Cole, head of FX strategy at RBC Capital Markets.

"We are probably still moving in the direction (of a deal), and that's the way the market is priced on balance ... the direction is still a positive one."

The uncertainty over trade weighed on commodities markets commodities.

Oil lost nearly 1% on Monday, with concerns over trade looming and worries on oversupply weighed on the market. Brent crude was down 54 cents, or 0.9%, at $61.97 by 0745 GMT.

In Europe, Spanish government bond yields held their ground after a weekend election delivered a deeply riven parliament and set the stage for difficult talks to form a new ruling coalition.

The far-right surged in the poll, the fourth in as many years. Spain's 10-year bond yield was flat at 0.40% <ES10YT=RR>.

Most other major bond yields across the euro zone were little changed on Monday, holding below highs reached on Friday as investors showed scant appetite for risk in the wake of the Hong Kong violence.

U.S. bond markets were closed on Monday for the Veteran's Day holiday.

(Reporting by Tom Wilson; Editing by Toby Chopra)

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