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European stocks recover; commodities track trade war
LONDON, Aug 8, 2019 (BSS/AFP) – European stocks rebounded Wednesday while
oil sank and gold spiked amid stubborn global trade war fears, dealers said.
London’s benchmark FTSE 100 index added 0.9 percent at the half-way
mark in a choppy trading week. Eurozone indices also bristled higher, with
the Paris CAC 40 and Frankfurt’s DAX 30 each winning 1.4 percent.
Money poured into the world’s bond markets on Wednesday as investors
shunned riskier assets such as stocks for the relative safety of government
debt.
Gold, another safe-haven favourite, rose to levels last seen six years
ago.
Official rate cuts from three central banks, including a surprisingly
aggressive one by the Reserve Bank of New Zealand, served as a stark warning
that a worsening US-China trade conflict is shaking confidence in global
growth.
As bond prices surge, their yield or returns to investors fall, with
benchmark 10-year government paper in the US and elsewhere dropping to multi-
year lows.
French and German bond yields, already in negative territory, even set new
record lows, highlighting how safety is now the first priority in the
markets.
“Nobody wants to be vulnerable, everybody is in risk aversion mode, and
all ingredients are in place to push yields lower,” Aurelien Buffault, bond
manager at Meeschaert, told AFP.
The US-China trade war is the main reason to worry about growth, analysts
said, but the outlook for a no-deal Brexit is also weighing on sentiment.
– ‘Rates falling everywhere’ –
Markets now believe that the world’s key central banks will cut interest
rates further to stave off, or at least alleviate, any coming recession,
analysts said.
Crucially, the hefty cut by remote New Zealand may be a precursor to
deeper US Federal Reserve easing, suggested Ipek Ozkardeskaya, Senior Market
Analyst at London Capital Group.
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“The surprise rate action from the RBNZ can only spur expectations of a
similar size cut from the Federal Reserve,” she said.
US Treasury yields showed a fall of 0.102 percentage points on the day,
outdone among developed economies only by New Zealand yields following the
rate cut, and Italy.
Ten-year yields elsewhere eased by 0.05 points or more.
“Rates falling everywhere,” observed analysts at Moneycorp.
“They may not exactly be competing but the world’s central banks all seem
to be pointing in the same direction towards lower rates. In every case there
is concern, to a greater or lesser degree, about the global economy,” they
said.
– Gold up, oil down, stocks wobble –
Commodity markets also followed the logic of economic worry, with safe-
haven investment gold surging and oil, the fuel of economic growth, falling.
Gold went above $1,500 per ounce for the first time since 2013.
“We see the ongoing steep rise in the gold price as an expression of the
high risk aversion among market participants,” said Commerzbank analysts.
“Gold is quite clearly still in demand as a safe haven in the current
market environment.”
Oil extended already steep weakness after the US Department of Energy
reported a surprise increase in inventories — a sign of flagging demand.
European stocks had a rollercoaster session which started on an upbeat
note but then turned sour when US stocks fell sharply at the New York opening
bell “with escalated US-China trade concerns continuing to weigh on
sentiment”, Charles Schwab analysts said.
But as Wall Street came off its morning lows, European equities regained
their poise to close mostly higher.
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