December 4, 2019 / 9:06 AM / 10 days ago

Daily Briefing: Trump's total trade war?

LONDON (Reuters) - The prospect of another 12 months of trade war between Washington and Beijing is enough to drive global markets, not to mention international businesses, to despair.

France's President Emmanuel Macron gestures during the meeting with U.S. President Donald Trump, ahead of the NATO summit in Watford, in London, Britain, December 3, 2019. Ludovic Marin/Pool via REUTERS

And yet just as U.S. President Donald Trump widened his protectionist trade assault to Latin America and Europe, he stopped the positive mood music about an imminent deal with Beijing, said he had no deadline to conclude the talks and held out the possibility of delaying any agreement until after November’s U.S. presidential elections.

“In some ways, I like the idea of waiting until after the election for the China deal,” Trump said in London on Tuesday, sending world stock prices, bond yields and China’s yuan plunging.

It remains to be seen whether the comments were just another ploy by Trump to regain the upper hand in stalled before the Dec. 15 deadline for the next round of U.S. tariffs on Chinese goods. U.S. Commerce Secretary Wilbur Ross on Tuesday said staff-level talks are continuing with Chinese officials, but no high-level meetings are scheduled and the Dec 15 tariffs would take effect without an agreement.

A Washington-based source briefed on the talks told Reuters the U.S. side is willing to roll back some of the tariffs China is demanding it remove, but it wants additional concessions from Beijing to curb the forced transfer of American technology to Chinese firms.

To be sure, many investors argue that the sharp reaction on Wall Street will soon see Trump soften his tone once again and encourage at least some partial agreement over the coming week. Reports overnight said Trump's son-in-law, Jared Kushner, would join the negotiations, adding mediation in the trade war to his long list of White House duties.

But the simultaneous doubling down of the administration on tariff rises against Brazil, Argentina, France and the European Union suggests Trump sees these trade wars as popular measures going into an election year and will unnerve investors who fear the fragile recovery in business confidence could evaporate quickly again in 2020.

Wall Street’s S&P 500 index had another dark day, losing almost 0.7% and on course for its worst week since August.

The Vix volatility gauge spiked to 18% for the first time since October. There was an instant bid for recession hedges and safe havens, with 10-year U.S. Treasury yields falling below 1.7% for the first time in a month and the yield curve between three-month and 10-year bonds flattening to its lowest since late October.

Japan’s yen, Switzerland’s franc and gold all jumped. MSCI’s all-country world stock index fell for the fourth straight day, its longest losing streak since early August. Japan’s Nikkei, Hong Kong’s Hang Seng and Australia’s main equity benchmark all lost more than 1% overnight.

Seoul fell 0.7%. With the yuan weakening back to October levels, Shanghai stocks outperformed with losses of just 0.3% - helped in part by another decent business survey reading from the service sector for November.

Euro stocks futures were flat before the open, teetering on possibly a fifth straight day of losses.

U.S. stock futures remain in the red.

Euro/dollar was just below $1.11. Sterling reached its highest in seven months as opinion polls showed the Conservatives holding and in some cases expanding their lead before the UK election next week.

South Africa’s rand weakened as PMI business surveys out this morning confirmed the deepening contraction that Tuesday’s surprising weak GDP data had signalled.

On the European corporate news front, French telco Orange is seen rising 1% on its plans to split off its mobile towers in most European countries. Iliad is seen rising 1% after it announced a share buyback.

Traders see fast fashion retailer QUIZ's shares slumping as much as 20% at the open after it reported a drop in profits.

Discounted share offerings by Zurich Airport operator and Cancom are expected to drive their shares lower.

Zurich Airport is seen falling 5%.

Airbus shares are seen rising 1% after United Airlines ordered 50 new long-range jets.

French jet engine maker Safran’s CEO voiced caution over whether the aerospace supply chain can ramp up quickly once the grounding of the Boeing 737 MAX is lifted.

A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own.

Editing by Larry King

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