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Stocks whacked as China export decline highlights trade war damage

Kitco News

LONDON (Reuters) - Global equity markets were in a somber mood on Monday after Chinese export data highlighted the economic damage from the 17-month long trade war and re-focused attention on a crucial Dec. 15 tariff deadline.

The only big winner of the day was the British pound which surged to seven-month highs versus the dollar ahead of Thursday’s election, which the ruling Conservatives are expected to win comfortably.

World markets had closed last week in an upbeat mood as forecast-beating U.S. jobs data reassured investors about the U.S. economy and sent MSCI’s index of global stocks 0.8% higher .MIWD00000PUS but those gains stalled as worries about a Chinese economic slowdown returned.

Several big events are due this week: The Federal Reserve meets on Wednesday, and new European Central Bank chief Christine Lagarde holds her first policy meeting on Thursday, the same day as Britain’s parliamentary election.

But at the forefront of investors’ minds is the Dec. 15 deadline for the United States to impose a new round of tariffs on China, mainly covering consumer goods such as cellphones and toys.

Top White House economic adviser Larry Kudlow said on Friday that the deadline was still in place. But he also said President Donald Trump likes where trade talks with China are going.

“If we see Donald Trump decide not to delay tariffs, that would lead to a risk-off reaction in markets,” said Nomura currency strategist Jordan Rochester.

“We don’t expect tariffs to go into effect as the talks are ongoing but the trade talks are the main driver this week,” he said, adding he did not expect any “fireworks” from the central bank meetings.

A pan-European equity index slipped 0.2%, having jumped 1% on Friday, as did the German DAX .GDAXI. France's CAC 40 .FCHI - hit last week by fears of U.S. tariffs on its luxury exports such as wine and handbags - shed 0.5 percent.

Europe’s energy sector was the biggest loser of the day, falling almost 1% as shares in Tullow Oil slumped 60% to 19-year lows (TLW.L) due to issues at its main producing assets in Ghana and the resignation of its chief executive.

Asia, however, managed to notch up small gains, with Japan's Nikkei .N225 adding 0.33 percent and MSCI's Asia-Pacific shares outside Japan .MIAPJ0000PUS up 0.15 percent.

Futures for the U.S. S&P500, Dow Jones and Nasdaq indexes were all down a marginal 0.1% ESc1 YMc1 NQc1. Retailer Macy’s shares (M.N) slipped 3% in premarket trade, on a Goldman Sachs downgrade to “sell”.

CHINESE SHIVERS

Markets have been working on the assumption that the Dec. 15 tariffs will be dropped or postponed, given Trump will be unwilling to risk a year-end equity selloff.

Concerns about damage being done to the global economy by the trade war, were renewed after China released data showing its exports shrank for the fourth consecutive month in November.

Chinese shares closed 0.2% lower, their losses checked by a rise in imports that was interpreted as a sign that Beijing’s stimulus steps are helping to stoke demand.

The U.S. dollar, which bounced on Friday after data showed U.S. job growth increased in November by the most in 10 months, was down marginally against a basket of currencies .DXY and the euro, at $1.107 EUR=EBS.

The strong labor market data in the United States allayed fears about a slowdown in the world’s largest economy which had been fanned by a series of weak figures on business and consumer activity.

“The clouds of recession still remain well offshore despite troubled economies elsewhere in the world and a trade war,” said Chris Rupkey, chief financial economist at MUFG Union Bank.

The British pound rose to a new seven-month high of $1.3180 GBP=D3 as investors raised their bets on a Conservative Party victory and majority in parliament in Thursday's general election.

Yields on government bonds inched lower, in keeping with market jitters as investors awaited the central bank meetings. U.S. 10-year Treasury yields were down 2 basis points at 1.8242%

Oil prices weakened after the disappointing Chinese trade data, with Brent futures LCOc1 down more than 1% at $63.73 per barrel after gaining about 3 percent last week on the news that OPEC and its allies would deepen output cuts.

Additional reporting by Dhara Ranasinghe and Sujata Rao in London, Tomo Uetake in Sydney and Hideyuki Sano in Tokyo; Editing by Ed Osmond and Hugh Lawson

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