US and European stock markets diverge as trade war jitters continue
US stock markets fell today and investors bought up so-called safe haven assets as central banks around the world slashed interest rates in response to slowdowns.
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European stocks climbed, however, as deals in the German chemicals sector provided a welcome boost to equities after a torrid start to the week.
Global stock markets tumbled at the start of the week after US President Donald Trump put 10 per cent tariffs to $300bn of Chinese goods in a major escalation of the two sides’ trade dispute.
In response, China’s currency the renminbi slid to the seven-per-dollar level not seen since the financial crisis. Investors saw the drop as a sign that China had resigned itself to not reaching a trade agreement.
The Dow Jones had fallen 1.2 per cent by 4.40pm UK time, while the S&P 500 had dropped 0.8 per cent and the Nasdaq index was 0.6 per cent lower.
Investors snapped up assets considered safe havens, driving the price of gold past the $1,500 mark for the first time in six years.
The yield on US 10-year government bonds, or Treasuries, had fallen six basis points (0.06 percentage points) to 1.64 per cent. Yields move inversely to prices.
The flight to safety was boosted by central banks in Thailand, India and New Zealand all cutting interest rates.
In Europe, the German Dax index had risen 0.7 per cent despite worse-than-expected industrial data.
The rise came as investors focused on a $3.9bn deal that will see German chemical groups Bayer and Lanxess sell a chemical park operator to infrastructure investor Mira. Bayer shares had climbed over six per cent while Lanxess had gained over four per cent.
France’s CAC 40 had climbed 0.6 per cent by 4.40pm, while Britain’s FTSE 100 lagged behind slightly with a 0.3 per cent gain.
The White House’s assurances yesterday that it wants to engage China in further talks appear to have appeased European investors, but US markets remained sceptical.
Masanari Takada, a strategist at Nomura, warned that stock markets could soon face a “Lehman-like shock” as trade tensions and slowing global growth caught up with equities.
“The second wave may well hit harder than the first,” he said. “We read the current trend in sentiment as suggestive of both deterioration in supply-demand for equities and a sharp downward break in fundamentals.”
Paul Eitelman, investment strategist at Russell Investments, said there is “potential for the Trump administration to raise tariffs even further in the fall”.
“We believe this may lead to potentially significant impacts for corporate earnings, consumer spending and the US labour market.”
Read more: Global markets recoil after Donald Trump trade war threats
Michael Hewson, chief market analyst at CMC Markets, said: “While markets in Europe appear to be finding a modicum of support after several days of declines it remains to be seen whether this can be sustained when bond yields continue to sink and safe havens continue to see inflows.”