Wednesday 12 December 2018

Fears of a trade war keep a lid on equities

Traders work on the floor of the New York Stock Exchange shortly after the opening bell. Photo: Reuters
Traders work on the floor of the New York Stock Exchange shortly after the opening bell. Photo: Reuters

Simmering fears of a global trade war overshadowed robust data from China and kept government bond yields low in the US and Europe on Wednesday, with US stocks sinking into the red amid a drop in industrial shares.

US President Donald Trump on Tuesday fired Secretary of State Rex Tillerson, seen as a free-trade proponent, replacing him with the more hawkish former Central Intelligence Agency Director Mike Pompeo.

Later on Tuesday, Reuters reported that the U.S. was seeking to impose tariffs on up to $60bn (€48.5bn) of Chinese imports.

The news contributed to a continued flattening on Wednesday of the US yield curve, a move also aided by a third consecutive monthly decrease in retail sales data.

The spread between five-year notes and 30-year bonds, an indicator of the shape of the yield curve, lowered to 44.9 basis points on Wednesday, three basis points below its last close.

Benchmark 10-year notes last rose 11/32 in price to yield 2.8079pc, from 2.848pc late on Tuesday.

"Long-term, continuing rate hikes will keep the flattening going," said Michael Cloherty, head of US rates strategy at RBC Securities in New York, though in the short-term, he said, "we're a little flatter than we should be".

In Europe, high-rated government bond yields edged higher but remained near recent lows. German 10-year government bond yields seesawed in midday trades, falling to a one-and-a-half-month low at 11.25am in New York.

The Iseq was up slightly at 6,681.55 in late trading. Movers included Applegreen up 3.23pc and Aryzta, where shares were down more than 2pc.

Positive news from China spurred higher openings on Wall Street, but the main stock indexes could not weather political fears as trading wore on.

China reported industrial output expanding at a surprisingly faster pace at the start of the year. Fixed-asset investment also beat forecasts, while retail sales improved.

That came on the heels of consumer price data on Tuesday that pointed to annual US core inflation steady at 1.8pc, pointing to the Federal Reserve not raise rates more than three times in 2018.

But dips in industrial stocks, including a 4.4pc drop in shares of Boeing sent US stocks reeling in morning trading.

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