Equity markets were a sea of red as sentiment remained fragile on Tuesday. Trump’s threats to escalate the trade war with China is ensuring that risk aversion dominates and has put an abrupt end to the recent rally which saw the Nasdaq and the S&P reach fresh record highs.
Stocks across Europe followed Asian markets lower and Wall Street has opened negative as investors ditch riskers assets in favour of safer havens. The dollar was broadly stronger, except versus the Japanese yen, confirming the risk off picture.
The FTSE was hard hit as Asian focused banks Standard Chartered (LON:STAN) and HSBC (LON:HSBA), miners and oil majors dragged on the index. Not even a weaker pound was sufficient to prevent the FTSE dropping 1%.
Whilst the dollar benefited from its safe heaven status, the pound was once again buckling under Brexit and concerns over Theresa May’s future. The pound extended its slide through $1.31 reaching fresh weekly lows.
Oil slips 2%
Oil majors traced the price of oil lower. Oil has experienced a roller-coaster ride over the past few sessions. Crude oil is trading well into negative territory near daily lows of $60.77. Trade jitters are keeping the bears in control and bringing $60 back into the picture as the risk off mood intensifies. Both the US and China are due to meet for further talks later this week. The escalation of the US – Sino trade dispute is overshadowing growing geopolitical tensions between US and Iran.
Oil parred all its losses on Monday, finishing the session 3% higher after Iran threatened reciprocal action to US sanctions. Oil traders have a lot to monitor right now as US - Sino trade tensions or US – Iran relations could sour dramatically.
German New Factory Orders Disappoint
The German DAX traded 0.8% lower. The DAX is particularly sensitive to trade dispute headlines. Weaker than forecast German factory orders have also weighed on support for the index.
New factory orders increased 0.6% in March from the month prior snapping four straight months of declines. However, the figure was well below the 1.5% forecast. Delving deeper into the numbers there was further cause for alarm as domestic demand dropped, just as foreign demand has picked up.
The sharp fall in domestic demand will be a concern for policy makers, who had been counting on strong consumer demand to support the German economy whilst it weathers external headwinds such as the US – Sino trade dispute, the global economic slowdown and Brexit.
The German government cut the growth forecast to just 0.5% last month, down from 1%. This was mirrored by the Europe Commission who painted a glum picture for economic growth across the bloc.
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