The optimism of late last week has reverted to caution on world markets, with global stocks stalling on Tuesday as questions mounted over the extent and durability of the latest U.S.-China trade truce and the likelihood of a Brexit deal by Thursday’s European Union summit.
Tensions over Turkey’s military offensive in Northern Syria also simmered, although the lira recovered some ground from five-month lows Tuesday after Washington announced sanctions against Ankara.
The currency caught a break partly on the feeling the sanctions, mainly against Turkey’s energy and defence ministries, could have been worse, but also because Turkish state banks have been widely seen intervening to cushion the lira’s fall; some estimates that put the spending as high as $2 billion on Monday.
However, Washington also announced plans to re-impose steel tariffs immediately and halted negotiations on a $100 billon trade deal.
And with little sign of Turkey’s halting its military operation against former U.S. allies – the Kurdish SDF forces – the prospect of a gradual ratcheting up of sanctions is very real as President Donald Trump comes under intense domestic pressure, after effectively giving Turkey the green light to advance with his abrupt decision to withdraw U.S. troops last week.
More broadly, markets grew sceptical of the latest advances in the U.S.-China trade talks. U.S. Treasury Secretary Steven Mnuchin said on Monday that an additional round of tariffs on Chinese imports will probably be imposed if a comprehensive trade deal with China has not been reached by Trump's meeting with China’s President Xi at next month’s APAC summit in Chile.
The U.S. third-quarter earnings season is about to begin and should reveal some of the damage from the escalation of the tariff row during the quarter. Wall Street stocks ended in the red overnight and Asia’s major markets were also down first thing Tuesday.
Shanghai stocks fell 0.5% and Hong Kong and Seoul benchmarks were flat. Tokyo played catch-up as it returned from a holiday on Monday and rose more than 1 percent.
After dour export and import readings for September, China said on Tuesday its factory-gate prices declined last month at the fastest pace in more than three years. U.S. Treasury yields turned lower again, after the yield curve between three-month and 10-year bonds turned positive on Monday for the first time in five months but slipped back to negative again today.
Sterling gained on Tuesday as traders continued to bet that either a Brexit deal would be reached by this week’s European Union summit or a delay in the Oct. 31 Brexit deadline would be agreed.
The pound had given back some of last week’s gains on Monday but popped higher again after the EU's chief Brexit negotiator, Michel Barnier, said an agreement was still possible this week even if it was proving difficult.
The pound and euro stocks were also buoyed by reports overnight that the EU is considering an emergency summit after this week but before Oct. 31 to get the deal done.
Elsewhere in currency markets, euro/dollar nudged above $1.10. China’s offshore yuan slipped, taking the emerging-market currency index lower.
In European corporate news, Kloeckner & Co’s shares were sliding 8% in Frankfurt after the steel company warned on profits, the latest European industrial company to signal it was suffering from trade tensions and faltering demand. Consumer-facing companies were faring better: shares in Germany’s Hellofresh was seen up 6% after it raised its profit outlook.
In the UK, housebuilder Bellway's shares were expected to rise 2% after a positive statement. The recruiter Hays reported no growth in net fees. Rivals PageGroup and Robert Walters warned on profits last week.
Among industrials, Renishaw shares were seen down 20% after the British engineering group’s profits plunged; Vesuvius was expected to drop 10% after a profit warning. European companies with exposure to Turkey were in focus after the U.S. sanctions, among them BBVA, UniCredit, BNP Paribas, Telia and Lufthansa.
— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —