LDN - Business

Muted data and Brexit woes douse stocks rally

[October 25, 2019] By Karin Strohecker

LONDON (Reuters) - Geopolitical tensions, muted economic data and mixed earnings stymied global stocks and weighed on crude oil prices on Friday with sterling hovering just above one week lows amid a new bout of Brexit anxiety.

European stock markets opened broadly softer with the pan regional STOXX 600 <.STOXX> slipping 0.3%, with Germany's DAX <.GDAXI> eased 0.1% while Britain's FTSE <.FTSE> fell 0.4%.

Losses were led by the food and beverage sector <.SX3P> weighed after the world's largest beer maker by Anheuser-Busch InBev <ABI.BR> tumbled 9% on disappointing quarterly profit and a glum outlook as the earnings season rumbled on.

Meanwhile lacklustre data did little to quell underlying concerns over the health of the global economy. Germany's Ifo business climate came in broadly unchanged while the mood among consumers in the block's largest economy fell to its lowest in three years heading into November as job losses in the auto and financial sector made shoppers more pessimistic about the outlook for Europe's biggest economy.

"We may have reached the bottom in the euro zone, but there is still uncertainty that is troublesome in the U.S. Many accounts will be waiting for the Fed," said Cyril Regnat, a fixed income strategist at Natixis, referring to next week's meeting of the U.S. central bank with markets pricing a 90% chance of a rate cut.

The losses in Europe follow a mixed performance in Asia where Japan's Nikkei <.N225> finished up 0.2% and Chinese blue-chips <.CSI300> gained 0.6% while Hong Kong's Hang Seng <.HSI> fell 0.28%.

U.S. futures pointed to a flat open on Wall Street following a mixed Thursday, which saw strong quarterly results from Microsoft <MSFT.O> and PayPal <PYPL.O> lift the Nasdaq 0.8% while the Dow Jones Industrial Average <.DJI> slipped 0.1% after 3M <MMM.N> slashed its full-year earnings outlook.

Meanwhile Amazon.com Inc <AMZN.O> shares will be in focus after the company on Thursday forecast revenue and profit for the holiday quarter below expectations on fierce competition and rising costs from its plan to speed up delivery times globally

Trade talks are also back in focus with U.S. and Chinese trade officials due to discuss plans for China to buy more U.S. farm products while Beijing in return will request cancellation of some planned and existing U.S. tariffs on Chinese imports.

The two sides are working to try to agree on a text for a "Phase 1" trade agreement announced by U.S. President Donald Trump on Oct. 11, in time for him to sign it with China's President Xi Jinping next month at a summit in Chile. Though there are still large gaps to bridge.

However, a speech by U.S. Vice President Mike Pence on Thursday, which criticised China's handling of the Hong Kong protests and its treatment of Muslim Uighurs in the Xinjiang region, did jangle nerves.

"Geopolitical concerns such as the global trade war are keeping investor optimism in check," said Paula Polito, client strategy officer at UBS Global Wealth Management, adding the firm's latest survey had found that investors had opted to raise their holdings of cash well above usual levels.

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A financial trader works at their desk at CMC Markets in the City of London, Britain, April 11, 2019. REUTERS/Peter Nicholls

A Reuters poll of economists showed that most think a steeper decline in global growth is more likely than a synchronised recovery, despite central bank easing.

In his last meeting as president of the European Central Bank, Mario Draghi left ECB policy and guidance unchanged, but advised his successor to "never give up" on propping up the eurozone economy in the face of a worsening outlook.

OVER TO BRUSSELS

In currency markets, the dollar <.DXY> traded flat against a basket of six major currencies while the euro steadied after falling to a one-week low against the U.S. dollar in the previous session on the ECB leaving the door open for more monetary policy easing, but keeping interest rates unchanged.

The British pound edged down to $1.2845, extending a 0.5% drop on Thursday, as investors waited for a European Union decision on a Brexit extension after British Prime Minister Boris Johnson called for a December general election.

Johnson conceded on Thursday for the first time that he would not meet his "do or die" deadline to leave the European Union next week.

EU envoys will discuss the length of another delay to Brexit at a meeting on Friday. An EU official said the choice was between three months and a "two-tier" lag but warned that a decision might not come just yet.

Euro zone bond markets have largely shrugged off the latest Brexit events, with the bechmark 10-year German government yield up 1 basis point at -0.395% <DE10YT=RR>.

The yield on benchmark 10-year Treasury notes <US10YT=RR> also held steady.

Graphic: Gold and 2 year yields, https://fingfx.thomsonreuters.com/
fx/mkt/12/7816/7747/us2txau.png

Oil prices fell on the day but were on track for strong weekly gains as support from a surprise draw in U.S. inventories and possible action from OPEC and its allies to trim production further outweighed broader economic concerns.

West Texas Intermediate (WTI) crude <CLc1> was down 0.4% to $55.99 a barrel, and global benchmark Brent crude <LCOc1> dipped 0.3% to $61.45 per barrel.

(Reporting by Karin Strohecker, Additional reporting by Tommy Wilkes in London and Andrew Galbraith in Shanghai; Editing by Angus MacSwan)

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