Global stocks were unnerved on Tuesday, as the White House’s threat to intensify its trade war with China reverberated around markets and a sharp reduction to economic forecasts from the European Commission chimed with the darkening mood.
The S&P 500 fell 0.7 per cent at the New York open, having retreated by 0.5 per cent over the previous session, leaving it heading away from late-April’s run of record closing highs. The yield on 10-year US Treasuries, known as the “risk-free rate” such is its reputation for safety, slipped 2.9 basis points as investors bought into the debt, taking the yield to 2.471 per cent.
Brent crude fell 1.3 per cent to $70.34 amid the unsettled outlook on growth.
The bleak economic forecasts from the EC included a prediction that Italy’s budget deficit would break EU fiscal rules. That would set up a clash between the country’s populist government and the bloc-wide authorities in Brussels. Milan’s FTSE MIB held its nerve, and was flat overall while the country’s sovereign bonds also held steady. But Italian banks were hit, with shares in UniCredit down 1.7 per cent.
Adding to concerns about the global economic outlook, the EC cut its forecasts for German growth to 0.5 per cent from 1.1 per cent. Demand for the relative safety of German government debt sent the yield on 10-year Bunds to its lowest level since early April, down 4 basis points to minus 0.03 per cent.
European indices fell steadily after a more volatile run in Asia. The Europe-wide Stoxx 600 was down 0.8 per cent, with Frankfurt’s Xetra Dax 30 down by the same margin. London’s FTSE 100 returned from a three-day weekend with a wider decline of 1.1 per cent.
Mainland China’s CSI 300 recovered 1 per cent on Tuesday, after a slide of almost 6 per cent on Monday, its biggest one-day fall in more than three years. Hong Kong’s Hang Seng added 0.5 per cent.
Japan’s yen, prized for its safety in uncertain times, firmed by 0.2 per cent at ¥110.57 per dollar. Gold ticked up 0.1 per cent to $1,281.68 an ounce.
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