Global stocks unsettled as US-China trade dispute rumbles on

European stocks held their nerve following falls in China, as fading hopes for a breakthrough in the trade dispute between Washington and Beijing set an uneasy tone to trade.

Harder rhetoric on both sides ahead of a meeting of the G20 at the end of the month left investors shy of taking on further risk after last week’s rebound for equities.

Oil prices fell as investors bet that US sanctions on Iran would not dent supply, while the UK pound held just below $1.30 (€1.14) after marked gains last week on optimism over a Brexit deal. Italian government debt was being sold – especially shorter-dated bonds - ahead of an EU meeting on euro zone members’ national budgets.

European bourses ticked higher in morning trade, even as Wall Street futures pointed to a lacklustre open in New York. where the S&P 500 was expected to slip 0.2 per cent. Frankfurt’s Xetra Dax 30 ticked up 0.1 per cent while the region-wide Stoxx 600 and London’s FTSE 100 stayed flat.

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There were bigger moves in Asia.

The Hang Seng closed down 2.1 per cent in Hong Kong, easing back from its best weekly performance since April 2015, with technology and financial stocks looking exposed.

Mainland China’s CSI 300 index of large Shanghai and Shenzhen-listed stocks dropped 0.8 per cent.

Tokyo’s Topix slid 1.1 per cent, with losses across the board. Technology and industrial stocks were among the worst hit.

The trading pattern followed a rough Friday session on Wall Street, where the S&P 500 dropped 0.6 per cent and the tech-focused Nasdaq shed 1.5 per cent after Larry Kudlow, US president Donald Trump’s top economic adviser, appeared to throw cold water on the prospect of an imminent US-China trade agreement when he said there were no such plans in the works.

Forex and fixed income

Italy’s government bonds were being sold, lifting their yields, ahead of a meeting of the euro group on national budgets in the currency area. The meeting came as a reminder of the disagreement between the EU and Italy on the populist coalition government’s spending plans. The yield on Italy’s 2-year BTPs rose 12 basis points to 1.19 per cent, with the benchmark 10-year yield up 6.5bp to 3.372 per cent.

Sterling was trading around the $1.30 mark, a level that has tended to reflect investors’ impressions on the likelihood of a Brexit deal, and one it has struggled to hold when the chances of an orderly departure from the EU have shrunk. The pound was up 0.3 per cent at $1.3005.

The dollar index was flat at 96.507.

The yield on 10-year US Treasuries eased down 1.5 basis points to 3.1989 per cent, having risen to a three-week high on Friday following data showing that US wage growth exceeded 3 per cent for the first time since the global financial crisis.

Commodities

Oil prices continued to fall, although their rate of decline eased after last week’s tumble. The falls came amid expectations that the market would remain well supplied despite US sanctions on Iran’s crude exports, starting this week.

Brent crude, the international benchmark, slipped 0.2 per cent to $72.70 a barrel, while US marker West Texas Intermediate fell 0.4 per cent to $62.88.

Gold was down 0.1 per cent at $1,232.17 per ounce.

– Copyright The Financial Times Limited 2018