World stocks enjoyed a strong bounce yesterday with European shares recovering from a turbulent week as investors’ fears of higher barriers to trade came closer to becoming reality.
MSCI’s index of world stocks rose 0.6 per cent during afternoon trading, its strongest gain in three weeks, but its second quarter was still set to be in the red as investors priced in US tariffs set to be implemented next week.
The US administration is due to activate tariffs on Chinese goods worth $34 billion on July 6, likely prompting a tit-for-tat response from Beijing.
European stocks rallied strongly, with the pan-European STOXX 600 up 1.1 per cent and Germany’s trade-sensitive DAX up 1.4 per cent.
US stock futures also extended gains, up 0.5 to 0.6 per cent and recovering from a brief spike lower after Axios reported that US President Donald Trump has repeatedly told aides he wants to withdraw from the WTO.
It was the latest sign of investors’ heightened sensitivity to deepening divides over trade. Tariff disputes have already mauled assets from the Chinese yuan to European autos stocks, and wiped $1.75 trillion off the value of world stocks since June 12.
Meanwhile, while Asian stocks rose, the Chinese yuan suffered its worst month on record, losing 3 per cent against the dollar in June as investors pulled money from a market likely to suffer from higher barriers to trade.
The yuan traded as low as 6.6441 to the dollar, its lowest since November, as investors speculated China may seek to devalue its currency to compensate for higher tariffs.
Despite gains yesterday, the CSI300 and Shanghai Composite are the world’s worst-performing major indexes this year.
In stark contrast to the yuan, the US dollar was set for its strongest quarterly gains since Q4 2016, helped by the United States Federal Reserve’s move to raise interest rates in June, and expectations of further hikes this year.
Oil prices extended their gains to fresh highs on a tighter market as United States sanctions against Iran threatened to remove a substantial volume of crude oil from world markets amid rising demand.
Brent crude rose 1.3 per cent to $78.85 per barrel, while US crude held steady at $73.45 a barrel.