G20’s protectionism shift hits global stocks
G20’s protectionism shift hits global stocks
LONDON, Mar 20: World markets baulked on Monday at the G20’s decision to drop a decade-old pledge to resist trade protectionism, with stocks, the dollar, oil and the price of many major sovereign bonds all sliding into the red, reports Reuters.
Investor scepticism over how much the U.S. Federal Reserve will be able to raise rates weighed on the dollar too, although with the exception of gold, the greenback’s weakness failed to give a fillip to commodities, as is often the case.
European stocks fell as much as 0.3 percent and U.S. futures pointed to a fall of around 0.2 percent at the open on Wall Street.
Banks were among the biggest decliners in Europe, dragged down by a 3 percent fall in Deutsche Bank shares .DBKGn.DE one day before the start of Germany’s biggest lender’s 8 billion-euro cash call.
“European equity markets have started the week with a heavy risk-off sentiment after the G20 communique explicitly reflected U.S. intentions to establish trade protectionist measures,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
“As the world’s number one economy is preparing to set significant barriers against the world, investors are increasingly worried,” she said.
Financial leaders of the world’s biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States after a two-day meeting failed to yield a compromise.
Breaking a decade-long tradition of endorsing open trade, G20 finance ministers and central bankers made only a token reference to trade in their communiques on Saturday.
On Friday, Wall Street was flat to negative, dragged lower by bank shares that slid along with Treasury yields.
The 10-year U.S. Treasury yield has fallen since the Fed raised rates last week for only the third time in over a decade. It edged up a basis point on Monday 20 2.51 percent.
The gap between two- and 10-year yields has shrunk recently, meaning the yield curve has flattened. This suggests investors are skeptical that growth and inflation will be strong enough to warrant a sustained cycle of rate hikes, and this has subsequently weighed on the dollar.
After raising rates last week, the Fed reiterated plans for a total of three rate hikes this year, fewer than the four markets were expecting.
G20 financial officials reiterated their warnings against competitive devaluations and disorderly currency markets. The dollar didn’t show much reaction, taking its cue instead from the moves in U.S. yields.
Currency markets are also focused on a raft of speeches by Fed officials this week, including Chicago’s Charles Evans on Tuesday and Friday, Chair Janet Yellen on Thursday, Dallas’s Robert Kaplan and Minneapolis’s Neel Kashkari on Friday and New York’s William Dudley on Saturday.
“Sentiment towards the dollar has deteriorated significantly,” Societe Generale FX analysts said in a note to clients on Monday.
The dollar index of its value against a basket of six currencies hit a six-week low of 100.02 on Monday before recovering most of its losses. A fourth straight lower close on Monday would mark its longest losing streak since November.
The dollar inched up 0.1 percent against the yen to 112.85 yen, while the euro rose 0.2 percent to $1.0760.
Citi became the latest major bank to abandon its headline forecast for a fall in the euro to below parity with the dollar, upping its prediction for the single currency over the next six to 12 months to $1.04 from $0.98 previously.
Attention now turns to the French election, with the first presidential debate set to take place on Monday. Opinion polls show independent centrist Emmanuel Macron would lead far-right leader Marine Le Pen by a hair in first-round voting, before beating her handily in the run-off.
In commodities, oil prices continued their downward trend as OPEC supplies remained steady despite touted cuts, and rising U.S. drilling contributed to concerns about a supply glut.
AFP from Hong Kong adds; Most Asian markets slipped Monday following last week’s broad advances, with the dollar suffering fresh selling pressure after the Federal Reserve hinted at a slower-than-expected pace of interest rate hikes this year.
With few events to drive buying, investors took a step back following a recent rally across global trading floors while there is a nagging fear that President Donald Trump’s promised tax cuts and spending splurge could come later than hoped.
“Positive catalysts to further moves higher appear to be lacking at the moment,” said Greg McKenna, chief market strategist at AxiTrader, in a note.
“The delay on the details of (Trump’s) tax plan is a risk for stocks if US data starts to disappoint.”
Wall Street provided a damp lead with the Dow and S&P 500 ending lower Friday.
In Asian trade Hong Kong rose 0.7 percent to levels not seen since August 2015 and Shanghai edged up 0.4 percent but Sydney shed 0.4 percent, Seoul also gave back 0.4 percent and Singapore was 0.5 percent lower.
Wellington tumbled 1.4 percent, hit by a 10 percent dive in market giant Fletcher Building, which cut its profit forecast citing huge losses on a key construction project.
Japanese markets were closed for a public holiday.
In foreign exchanges the dollar was down against most other currencies after the Fed on Wednesday lifted borrowing costs as expected but pointed to another two rises this year, confounding talk of a possible three or four.
The greenback retreated against the yen and euro as well as most other high-yielding currencies including the Australian dollar, South Korean won, Thai baht and Indonesia’s rupiah.
“The less hawkish stance by the Fed has opened the door for local (emerging market) trade, even more so with the stronger-than-expected Chinese data last week, adding to the global dollar squeeze,” said OANDA senior trader Stephen Innes.
Adding to market unease were concerns about Trump’s plans for global trade after his Treasury Secretary Steven Mnuchin refused to renew past anti-protectionist pledges at a G20 gathering.
Commitments of support to the existing multilateral trade system, including the World Trade Organization, were also conspicuously missing from the final communique from the finance ministers’ gathering at the weekend.
The move follows Trump’s warnings to throw up levies and revise global agreements he says are unfair to the United States.
In Mumbai Idea Cellular rose four percent after announcing it would merge with British telecoms giant Vodafone’s Indian unit to make the country’s biggest operator.
The news followed months of speculation they were ready to sign a deal to help fend off Reliance Jio, whose recent arrival has shaken up India’s ultra-competitive mobile network market.
The merged firm will be worth $23.2 billion, according to Bloomberg News.