World stocks slipped and US shares were set to fall yesterday, halting a four-day recovery rally as anxiety surrounding global trade conditions and rising US interest rates dampened risk appetite.
European shares managed to reverse losses in choppy trade as investors readied for US congressional midterm elections today, while sterling briefly climbed on a newspaper report that a Brexit agreement was imminent.
US stock futures fell into the red, though, indicating a weaker start for Wall Street with S&P 500 futures down 0.1 per cent and Nasdaq futures down 0.3 per cent.
MSCI’s all-country world index lost 0.2 per cent as investors remained cautious.
Chinese blue-chips fell overnight after White House economic adviser Larry Kudlow denied Washington has drafted a trade agreement with Beijing. But investors looked to signs of support from Chinese stimulus to withstand higher trade tariffs. President Xi Jinping promised to lower import tariffs and continue to broaden market access.
Emerging stocks tumbled 0.8 per cent. With the Federal Reserve meeting tomorrow and Thursday, the prospect of even tighter US monetary policy after strong economic data is also on investors’ minds.
Markets are now pricing in a higher probability of a December rate hike with further tightening to 2.75-3.00 per cent seen through 2019.
Sterling briefly jumped to a two-week high on hopes of a Brexit deal, before paring gains to trade up 0.1 per cent at $1.2986.
A Sunday Times report that an all-UK Customs deal will be written into the agreement governing Britain’s withdrawal from the European Union drove the pound to $1.3062, its highest since October 22.
Ms May’s office said the report was speculative, but that 95 per cent of the withdrawal agreement was settled and negotiations were ongoing.
The dollar index that measures it against a basket of major currencies was up 0.12 per cent while the euro fell 0.2 per cent to $1.1365.
Core euro zone bond yields fell as expectations of faster United States rate hikes, doubts over Sino-US trade talks and the mid-term elections prompted more defensive positioning.
Italian bond yields rose, however, driving bank stocks down 1.4 per cent.
Italy’s FTSE MIB was Europe’s worst-performing index as Goldman Sachs analysts predicted more cuts to earnings forecasts for Italian lenders, cutting BPER Banca and Intesa Sanpaolo to “sell”.
Oil prices steadied as the reimposition of US sanctions against Iran’s fuel exports was softened by waivers that will allow some countries to continue to import Iranian crude, at least temporarily.
Brent crude was unchanged at $72.83 a barrel.