Stocks mostly slid across the world yesterday as investor optimism over China-US trade talks faded and concerns over the US government shutdown mounted.
Discussions between US and Chinese officials to find a way out of an impasse that has seen the world's top two economies impose tariffs on hundreds of billions of goods and imperil global growth had fuelled gains in recent days.
After three days of talks in Beijing, Chinese officials said negotiators had “laid the groundwork” to resolve their differences. This week Donald Trump tweeted his optimism a deal could be struck at some point but the lack of concrete news has persuaded some investors to cash in recent gains.
Among Europe’s major exchanges, Paris led the losses in afternoon trading with a drop of 0.7 per cent.
Wall Street opened lower, with the Dow giving up 0.5 per cent in the first minute of trading.
Market analyst Patrick O'Hare at Briefing.com put the slide down to profit-taking following the recent rally, pointing out that the S&P 500 has gained 10 per cent in just ten trading sessions from its December 24 low.
“It’s a fantastic return by any measure and it’s one reason why the market is expected to start today on a lower note,” he said.
Market gains in recent days had also been fuelled by the US Federal Reserve taking a distinctly softer tone on interest rate hikes.
Fed boss Jerome Powell said last week that there was no “pre-set” plan on rates, triggering a global stocks rally. The Fed had previously been expected to continue raising interest rates in 2019, and concerns about rising borrowing costs sapping growth was a key factor in driving equities lower late last year.
Minutes from the latest Fed policy meeting released on Wednesday showed it was happy to ease the pace of rate hikes to prevent a slowdown in the economy.
US central bankers said they “can afford to be patient” owing to low inflation and uncertainty about the outlook. While there would likely be more increases in borrowing costs, they said it would be a “relatively limited amount”.
The comments sparked a dollar sell-off in Asia, with the greenback weakening across the board and the Chinese yuan moving to its highest level against the greenback since late August.
A falling dollar hurts Asian exports, with Tokyo stocks taking the biggest hit.
Markets also took a knock after Mr Trump walked out of a meeting with Democrats to resolve the ongoing US government shutdown, which is now in its third week with no end in sight.
Oil prices declined yesterday, having surged around five per cent Wednesday in response to confirmation from Saudi Arabia that it would slash exports after an agreement between Opec and other top producers last year.