London: Global markets experienced a slight bout of weakness on Tuesday as traders cashed in on recent record highs, awaited a long-anticipated US-China trade deal and began to digest the first Wall Street earnings of the new year.
US stocks are off to a mostly lower start on Wall Street as losses for some banks and health care companies offset gains elsewhere in the market. Wells Fargo slumped in early trading Tuesday after reporting a sharp drop in profit in its latest quarter. Other banks, including JPMorgan Chase rose. Delta Air Lines rose after reporting higher earnings. The S&P 500 fell 4 points, or 0.1 per cent, to 3,284. The Dow Jones Industrial Average edged up 20 points, or 0.1 per cent, to 28,926. The Nasdaq fell 11 points, or 1 per cent, to 9,262. Bond prices rose. The yield on the 10-year Treasury slipped to 1.83 per cent.
It was smooth sailing in Asia; MSCI’s world stocks index set a new record high after reassuring Chinese data and Washington had said it no longer deemed Beijing a currency manipulator. But Europe’s session saw the currents turn.
Dealers struggled to put their finger on the exact cause but London, Frankfurt and Paris all saw an early wobble which left the regional STOXX 600 down as 0.5 per cent, and bonds and other safe-haven assets suddenly back in demand.
“You had some good news in terms of China coming off the list of currency manipulators and so you would have expected bond prices to extend losses,” said Andy Cossor, a rates strategist at DZ Bank in Frankfurt.
“So, I think it might be a case that people got ahead of themselves yesterday and are covering short positions.”
A number of heavyweight emerging-market currencies were on the ropes too. The highly-sensitive South African rand hit a three-week low and Turkey’s lira took its biggest tumble since mid-December as it dropped 0.4 per cent.
China’s yuan also backed off, having hit its highest level since July overnight after the US Treasury Department said it had removed the currency manipulator tag it had imposed on the country in August.
Beijing had done its part by fixing the yuan’s official level at its firmest level in more than five months. It has also pledged to buy almost $80 billion more of US manufactured goods over the next two years and more than $50 billion of energy supplies, according to a source briefed on the trade deal.
The moves coincided with the arrival of a Chinese delegation in Washington ahead of Wednesday’s scheduled signing of the Phase 1 trade agreement, seen as calming a dispute that has upended the world economy.
“There have been a number of false starts,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore, of the expected deal signing.
“The fact that this is really coming to the moment when the rubber hits the road is the most tangible evidence of traction in starting to resolve issues.” In contrast to Europe’s dip, Japan’s Nikkei had added 0.7 per cent overnight to hit its highest level in a month.
Australian shares rose by the same margin to close at a record Hong Kong’s Hang Seng and Shanghai blue chips also hit multi-month peaks before running out of steam.
New season
In reaction to the pullback in risk appetite, gold climbed up off a two-week low although it was still around 0.2 per cent weaker for the day at $1,543 per ounce.
Ten-year US Treasury note yields, the benchmark for risk-adverse fixed income markets also rallied, dropping roughly three ticks to 1.835 per cent compared with the 1.863 per cent they had touched in Asia.
In currency markets, the Japanese yen stabilised near 110 yen-per-dollar, while another safety play, the Swiss franc, hit its highest level against a lifeless euro since 2017 and rose 0.4 per cent against the dollar.
In contrast to China, Washington slapped the currency manipulator tag on Switzerland on Monday.
Besides the expected trade deal, investors are also looking to US inflation data due at 1330 GMT, with consensus expectations for it to hold steady at 0.2 per cent in December.
At the beginning of the fourth-quarter US company results season, JPMorgan posted what looked to be, at first reading, a better-than-expected rise in quarterly profit, as strong results at its trading and underwriting businesses offset weakness in consumer banking.
Consumer lending is expected to propel profits for big US banks is the results this week, though stress in corporate lending and uneven capital markets may cast a shadow.
