Fears of an escalating trade dispute between the United States and China spread from Asian markets to Europe yesterday, triggering a fall in bonds yields and stocks while a batch of disappointing corporate results also weighed on sentiment.
Germany’s blue-chip index DAX, which is seen as a trade war proxy, fell 1.5 per cent in midday trading while the broader pan-European STOXX 600 was down about 0.8 per cent.
A number of poor trading updates, notably by German industrial conglomerate Siemens, also help drag down European bourses.
US stocks futures for the S&P, Dow Jones and Nasdaq were also trading in negative territory with losses between 0.5 per cent and 0.7 per cent.
Euro zone government bond yields edged down. Borrowing costs in Germany and France pulled back from seven-week highs as demand for safe-haven debt grew after the US administration increased pressure on China by proposing a higher 25 per cent tariff on $200 billion worth of Chinese imports.
MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.6 per cent down, dragged down by a 1.8 per cent fall in Chinese H-shares.
Analysts blame the current retreat in world stock markets on uncertainty around the trade policy of the Trump administration, while recent corporate results and economic data are seen overall as encouraging.
“One needs to have a strong gut feeling to invest in this environment and in August, I doubt many people will have one,” said Herve Goulletquer, deputy head of research at France's La Banque Postale Asset Management in Paris.
He added that investors badly needed a “framework of interpretation” to read through the trade statements of the Trump administration and the poor visibility on that front was holding markets back.
Sterling briefly and only modestly rose after the Bank of England hiked interest rates above their financial crisis lows and signalled it was in no hurry to tighten policy further with an uncertain Brexit on the horizon.
On Wednesday, the Federal Reserve kept interest rates unchanged as expected, characterising the US economy as strong and staying on track to increase borrowing costs in September and likely again in December.
Meanwhile, oil prices fell for a third day, following a surprise increase in US crude inventories that added to existing concern about the rapid rise in global crude supply.
Brent crude futures were down 39 cents at $72.00 a barrel.
Copper hit a two-week low yesterday as a flare-up in trade tensions between the United States and top metals consumer China boosted the dollar.