May 23, 2019
By Herbert Lash
NEW YORK (Reuters) – World shares skidded further on Thursday as concerns grew that the China-U.S. trade conflict was fast turning into a technology cold war between the world’s two largest economies, leading oil prices to plunge and strengthening the dollar.
Worries over German manufacturing, the impact of the trade war on Asian economies and deepening concerns over Brexit and European parliamentary elections have curbed risk appetite and sent investors scurrying to perceived safe-haven assets.
The dollar hit its highest level in two years against a basket of six major currencies and the euro slumped to levels last seen in May 2017 as a recovery in euro zone business activity was weaker than expected.
Stocks tumbled on Wall Street and yields on the benchmark 10-year U.S. Treasury note fell to their lowest since December 2017 as IHS Markit data showed U.S. manufacturing growth in May posted its weakest pace of activity in nearly a decade.
Equity investors, basking in the luxury of low interest rates, had been hoping for the best since U.S.-China trade talks soured, said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
As of Wednesday’s close, the S&P 500 was just 3% off its record closing high on April 30.
“You’re seeing asset classes respond to the risk and they have been for the couple of weeks,” O’Rourke said. “Now that it’s become clear that the risks are out there, the (equity) market has to price them in. There should be more downside.”
MSCI’s gauge of stocks across the globe shed 1.10% while the FTSEurofirst 300 index of leading European shares fell 1.18%.
On Wall Street, the Dow Jones Industrial Average fell 312.3 points, or 1.21%, to 25,464.31. The S&P 500 lost 32.48 points, or 1.14%, to 2,823.79 and the Nasdaq Composite dropped 102.01 points, or 1.32%, to 7,648.83.
Asian stocks fell overnight to a four-month low.
Investors worry that the U.S.-China trade dispute, which has already hurt global growth and business investment, could see a further escalation with no signs of a resolution as yet.
China fired a fresh salvo on Thursday, saying Washington needed to “correct” its “wrong actions.”
Japanese conglomerate Panasonic Corp joined a growing list of multinationals that have said they are disengaging from Huawei, the largest telecom-gear maker and second-largest seller of smartphones.
It also came after Reuters reported on Wednesday the U.S. administration was considering Huawei-like sanctions on Chinese video surveillance firm Hikvision over the country’s treatment of its Uighur Muslim minority.
The U.S. military also said it had sent two Navy ships through the Taiwan Strait.
“It’s tin hats on and battening down the hatches for a fair bit of volatility for the next few months,” said Tony Cousins, chief executive of Pyrford International, the global equities arm of BMO Global Asset Management.
One of the few markets to escape the turmoil was India. Its main stocks market touched an all-time high after Prime Minister Narendra Modi’s party scored a historic election victory. Official data showing Modi’s Bharatiya Janata Party (BJP) ahead in 292 of the 542 seats available.
The rupee also climbed but that, too, was an outlier.
Investors piled into the dollar as a relative safe haven because of its importance in the global economy and the extra cushion of the United States having some of the highest interest rates in the developed world.
The dollar hit a high of 98.371 against a basket of six major currencies, its highest since May 2017, as it headed for a fourth consecutive month of gains.
The euro was down 0.04% at $1.1148 after touching $1.1109. The Japanese yen strengthened 0.52% versus the greenback at 109.79 per dollar.
U.S. Treasury yields dropped across the board as risk appetite diminished and Germany’s 10-year bond yield fell further into negative territory after a survey showed business activity in the bloc was weaker than expected in May.
HS Markit’s PMI, a guide to economic health, nudged up to 51.6 from a final April reading of 51.5, but was below market expectations for 51.7.
The benchmark 10-year U.S. Treasury note rose 17/32 in price to push its yield down to 2.3344%.
Germany’s 10-year government bond yield fell three basis points to minus 0.114%.
Oil prices extended declines from the previous session as trade tensions dampened the demand outlook and put the main benchmarks on course for their biggest daily and weekly falls in six months.
Brent crude futures, the international benchmark, fell to a session low of $67.53 per barrel, and was trading down $3.00 at $67.99.
U.S. West Texas Intermediate (WTI) crude futures were off by $3.47 at $57.95 per barrel.
(Reporting by Herbert Lash; Editing by Nick Zieminski)