European stocks rise, cooling demand for safety of government bonds and gold

London (Mar 15)  A break in the recent global trade-war squalls helped lift European stocks on Thursday and cooled demand for the markets’ traditional safety plays of government bonds and gold.

Good-looking results from insurance heavyweights Munich Re, Generali and Old Mutual also helped Europe’s mood, but it was mainly relief that, for now at least, US President Donald Trump’s trade-war drum wasn’t beating any harder.

The dollar consolidated a modest bounce following three days of losses, while the big credit market benchmarks of US treasuries and German bunds both saw selling for the first time in four days.

China’s widely read and state-run tabloid the Global Times had added to the trade-war talk overnight, saying the US was trying to play the victim. Germany’s economic ministry then said a trade war could "cause tangible damage".

In an ominous sign for Trump’s Republicans, eight months before national mid-term elections meanwhile, a moderate Democrat candidate looked to have won what should have been a shoo-in congressional election for Republicans in Pennsylvania.

"The big questions the market has is about politics in the US at the moment and about trade policy," said Julien-Pierre Nouen, chief economic strategist at Lazard Frères Gestion. "Exporters have been a bit weak and you can see there are some worries about whether other countries will retaliate ... but you really have to stick to the economic outlook and, in fact, we think the economic outlook remains very good."

The 0.2% bounce in European stocks came after a subdued Asian session, which itself had followed another bumpy day on Wall Street during which global plane maker Boeing was hit particularly hard.

Shanghai lost 0.3%, Hong Kong’s Hang Seng was flat and Australian stocks fell 0.25%. Japan’s Nikkei, though, erased early losses to finish up 0.12% despite a stronger yen and an ongoing scandal surrounding Prime Minister Shinzo Abe and finance minister Taro Aso. Abe has denied wrongdoing by himself or his wife and Aso has denied instructing any cover-up.

Japan’s equity market "has been holding up relatively well, but it will have to decline some more if US shares deepen their losses," said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo.

Insane

There was bright news elsewhere in the region too. China’s President Xi Jinping offered encouragement for South Korea’s initiative to nurture peaceful engagement with North Korea, and Russia also expressed support.

North Korean foreign minister Ri Yong-ho will begin a rare two-day visit to Sweden on Thursday, which represents the US diplomatically in the isolated country, the Swedish foreign ministry said.

The dollar index, which measures it against a basket of six other major currencies, barely budged at 89.698 and at $1.2354 to the euro in European trading, having fallen almost 1.5% so far this month.

Sterling was at a day’s low at just less than $1.40 the day after Britain said it was expelling 23 Russian diplomats over the poisoning of a former Russian spy living in Britain last week. Russia’s foreign ministry spokesperson Maria Zakharova told a news briefing that Moscow would soon retaliate.

In metals markets, safe-haven gold lost some of its appeal, with spot prices dipping 0.1% to $1,326.16 an ounce.

Oil prices held steady, though, with Brent crude futures at $64.91 a barrel and US West Texas Intermediate (WTI) crude futures fractionally higher $61.05 a barrel.

The market is being supported by healthy global demand, but that is being offset by a relentless rise in US production that is undermining efforts led by oil cartel Opec to cut supplies and prop up prices.

Reuters

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