Stocks edge down on China worries as trade talks and Fed decision loom

World shares slipped into the red on Monday, with equities markets from Europe to Asia buffeted by nerves over China’s economy and investors staying cautious ahead of a week packed with major events.

Major European bourses fell in morning trade, mirroring a retreat for Asian peers as gloomy data on China’s industrial profits outweighed any boost from the tentative end to the US government shutdown late last week.

At the start of a busy week, investors were focused on Sino-US trade talks and the Federal Reserve’s policy meeting.

Votes

Also in focus was a looming twist in Britain’s exit from the European Union, with crucial votes due on Tuesday in the British parliament designed to break the Brexit deadlock.

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The MSCI world equity index, which tracks shares in 47 countries, was down 0.1 per cent. MSCI’s main European Index dropped 0.5 per cent, with the broader Euro STOXX 600 losing the same. Major indexes in France, Germany and Britain all fell.

In Asia, bourses in Shanghai, Hong Kong, Tokyo and Seoul had earlier all closed down, though MSCI’s broadest index of Asia-Pacific shares outside Japan was flat.

Investors said stocks fell on worries over a second straight monthly fall in profits for China’s industrial firms.

The data suggested trouble ahead for Chinese manufacturers already struggling with falling orders, job layoffs and factory closures amid a protracted trade war with the United States.

"A slowdown in the Chinese economy could be sometimes taken as an idiosyncratic event which would be dealt with by Beijing," said Philip Shaw, chief economist at Investec.

“It’s pretty clear that the current situation is more global, in terms of the tariff tension between the US and China and the threat of that dispute spilling over more widely.”

Investors are now waiting for Chinese vice premier Liu He’s visit to Washington on January 30-31st, for the next round of trade negotiations with the United States.

With the sides still far from resolving trade issues, the dollar stood firm as traders sought a safe haven as they await news from US-China talks on Tuesday and Wednesday.

The dollar index – a gauge of its value versus six major peers – was flat at 95.793.

Talks

"In this environment the dollar is holding up well," said Thu Lan Nguyen, a forex strategist at Commerzbank. "I assume that this will continue to be the case, even as the conflict intensifies at the end of the week," she said, referring to the talks.

The dollar will also get a strong steer from this week’s Fed meeting, where the central bank is expected to signal a pause in its tightening cycle and to acknowledge growing risks to the world’s biggest economy.

Though the Fed has forecast two more interest rate hikes for 2019, a darkening global economic outlook and highly volatile stock markets have clouded the policy picture.

Elsewhere in currency markets, sterling drifted lower ahead of crucial votes in the British parliament aimed at breaking the Brexit deadlock.

The British currency lost 0.3 per cent to $1.3164, as investors consolidated positions ahead of Tuesday’s Brexit votes.

MPs earlier this month rejected prime minister Theresa May’s deal to leave the EU, which included a nearly two-year transition period to help minimize economic disruption. That defeat set up a series of votes in parliament, through which lawmakers and the government will try to find a way forward.

Fall

Elsewhere, Germany's 10-year government bond yield was marginally lower at 0.194 per cent, having fallen last week when European Central Bank President Mario Draghi warned that risks to the euro zone economy had eased.

Mr Draghi is due to speak later on Monday at the European Parliament in Brussels. Investors said they will look for any further details on potential changes to monetary policy.

Brent crude futures were down 1.8 per cent, at $60.56 a barrel.

The fall came as moves by US. firms to add rigs signalled that crude output may rise further, and worries grew over the signs of economic slowdown in China, the world’s second-largest oil user.

Gold was slightly down. Spot gold was down 0.2 per cent at $1,300.56 per ounce, hovering just below a more than 7-month high of $1,304.40 reached earlier in the session. – Reuters