November 11, 2019 / 8:39 AM / a month ago

Daily Briefing: Caution rules

LONDON (Reuters) - Caution rules on world markets first thing on Monday. A violent escalation of long-running Hong Kong street protests knocked the Hang Seng benchmark stock index down almost 3%, dragging most of Asia’s major bourses into the red as trepidation over the U.S.-China trade deal resurfaced following last week’s relative optimism.

People run away after police fired tear gas in Hong Kong, November 11, 2019. REUTERS/Tyrone Siu

Shanghai stocks were down almost 2%, while Tokyo and Seoul were also lower. What appears to have been a chaotic weekday in HK led to another protester being shot, with the disruptions that typically defined the weekends now moving into the working week.

The Hang Seng’s reversal means it has underperformed MSCI’s all-country world index by more than 11% since the protests started in June.

The MSCI world index itself was on course for its worst day in almost a month, after five consecutive weeks of gains. U.S. and European stock futures were a touch lower too, the former backing off another record closing high from Friday.

Sector-wise, luxury stocks were expected to be hit hardest by the HK development. The U.S. Veterans Day holiday later will shut the Treasury bond market today, though not the equity and currency markets.

The economic news was no better than the news from the street overnight. Chinese car sales were down 4% in the year to October, easing the pace of recent annual declines but recording the 16th straight month in the red.

China’s offshore yuan also eased back after weekend news that Chinese consumer prices rose at their fastest pace in almost eight years in October with year-on-year inflation hitting 3.8%, driven mostly by a surge in pork prices as African swine fever ravaged the country's hog herds.

The news greeting European traders was not much better, although there was much less price movement as a result.

Spanish bond markets and debt spreads with Germany only opened a touch weaker after Sunday’s election saw the Socialist Party failing to get a majority after the second election in two years, with support for the far-right surging and delivering a deeply fragmented parliament that sets the stage for difficult talks to form a new government.

Supporters of Spain's far-right party VOX react as they hold flags during Spain's general election, outside the party headquarters in Madrid, November 10, 2019. REUTERS/Susana Vera

Sterling was also steady first thing after credit rating firm Moody’s on Friday lowered the outlook on its Aa2 UK sovereign credit rating to negative from stable just as both major parties campaigning ahead of next month’s national election are promising billions in extra spending funded by new borrowing.

UK GDP numbers for the third quarter, as well as manufacturing and trade updates, are due out later. Currency markets were quiet more broadly, with the dollar a touch weaker in general.

Emerging market currencies were on the backfoot. South Africa’s rand fell 0.5%, extending Friday’s losses when the currency came under fresh pressure after nationwide electricity blackouts reminded markets of just how vulnerable its economy is. President Cyril Ramaphosa and other policymakers are speaking at the Africa Investment forum in Cape Town.

Turkey’s lira slipped 0.3% as markets are awaiting a meeting between Presidents Erdogan and Trump on Wednesday, with a White House official warning on Sunday that Washington was very upset about Ankara’s purchase of a Russian missile defence system and could slap sanctions on the country unless Erdogan would “get rid” of it.

Eyes were also on Bolivian dollar-bonds after President Evo Morales on Sunday announced he was resigning to ease violence that has gripped the South American nation since a disputed Oct. 20 election, but stoked fears of more unrest ahead by saying he was the victim of a coup and faced arrest.

On the European corporate front, a few announcements could catch the eye of investors such as German software group Teamviewer which said core profits were up 95% in its first results since its IPO. French insurer AXA said it expected to book net proceeds of $3.1 billion from the sale of a 29% stake in AXA Equitable Holdings as it exits its U.S. life insurance business.

There was more M&A with Aspen Pharmacare Holdings selling its Japanese operations to Novartis' Sandoz in a 400 million euros deal. German payment group Wirecard also announced a strategic partnership with Here Moblity.

Another possible mover is Embattled Swiss steelmaker Schmolz & Bickenbach which will shareholders for permission to raise up to $616.16 million  in new capital. Also to note a report in Sueddeutsche Zeitung that Daimler is to cut 1,100 managing positions worldwide.

— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —

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