A gauge of global stock markets fell on Tuesday as the latest round of U.S.-China trade talks began amid a threat from President Donald Trump, while concerns over a no-deal Brexit continued to drag the British currency lower.
Trump warned China against waiting out his first term in office before finalizing a trade deal, saying if he wins re-election in the November 2020 presidential contest, the outcome could be no agreement or a worse one.
Traders are also bracing for the Federal Reserve’s policy announcement on Wednesday, for which markets have already fully priced in a quarter of a percentage point cut. A 50 basis-point cut has a 1-in-5 chance, according to futures markets.
“If not for trade policy, we would not be using monetary policy in the way we are using it now,” said Art Hogan, chief market strategist at National Securities in New York.
“The real conundrum is if, in fact, the Fed cuts rates because they are seeing a global economic slowdown and no real inflation, then the administration becomes emboldened to fight this battle longer.”
Major Wall Street stock averages were little changed. The Dow Jones Industrial Average fell 23.2 points, or 0.09 per cent, to 27,198.15, the S&P 500 lost 7.79 points, or 0.26 per cent, to 3,013.18 and the Nasdaq Composite dropped 19.72 points, or 0.24 per cent, to 8,273.61.
Canada’s main stock index fell slightly on Tuesday pressured by worries over the U.S.-China trade war, ahead of a highly anticipated Federal Reserve policy statement.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 26.12 points, or 0.16 per cent, at 16,466.05.
The energy sector jumped 2.3 per cent, while the financial sector dropped 0.5 per cent.
The materials sector, which includes precious and base metals miners and fertilizer companies, added 1 per cent as gold futures rose.
Nutrien Ltd. jumped 7.1 per cent after reporting quarterly results, while cannabis producer Aphria Inc. rose 4.3 per cent and was among the top gainers on the main index.
Colliers International Group Inc. fell 5.5 per cent after the company’s quarterly results missed estimates.
The broadside against China by Trump weighed on European indexes, along with underwhelming forecasts from German giants Bayer and Lufthansa.
The pan-European STOXX 600 index lost 1.47 per cent and MSCI’s gauge of stocks across the globe shed 0.28 per cent.
Emerging market stocks lost 0.19 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.06 percent lower, while Japan’s Nikkei rose 0.43 percent.
In currencies, sterling continued to stumble against the dollar after suffering its biggest decline in eight months on Monday. Prime Minister Boris Johnson promised on Tuesday to lead Britain out of the European Union on Oct. 31 “no matter what.”
Many investors say a no-deal divorce from the EU would tip Britain into a recession and inject unwanted uncertainty into financial markets.
The pound fell to as much as $1.2121, its lowest since March 2017 and was last trading at $1.2168, down 0.40 per cent on the day.
“Sterling is moving due to local political developments - most importantly the idea that Prime Minister Johnson may not want to meet European leaders unless they change their position, which is a more hard line stance than the market would have expected as recently as a week ago,” said Shahab Jalinoos, global head of foreign exchange strategy at Credit Suisse in New York.
The dollar index, tracking the greenback against six major currencies, rose 0.01 per cent, with the euro up 0.08 per cent to $1.1153.
U.S. Treasury yields rose ahead of the Fed announcement, after data showed consumer confidence rebounded in July to its strongest level since November.
Benchmark 10-year notes last fell 3/32 in price to yield 2.0649 per cent, from 2.055 per cent late on Monday.
Oil prices rose about 2 per cent to a two-week high on Tuesday on optimism the U.S. Federal Reserve will cut interest rates this week for the first time in more than 10 years, boosting demand expectations in the world’s biggest oil user.
Meanwhile, ahead of weekly data, crude oil inventories in the United States were forecast to have dropped for a seventh straight week.
On its second-to-last day as the front-month contract, Brent futures for September delivery gained $1.01, or 1.6 per cent, to settle at $64.72 a barrel, while U.S. West Texas Intermediate (WTI) crude gained $1.18, or 2.1 per cent, to settle at $58.05.
That put both contracts up for a fourth day in a row to their highest closes since July 15.
For the month, however, both contracts were still set to decline due to lingering worries about oil demand with Brent down over 2 per cent and WTI down less than 1 per cent.
Reuters