Global Stock Rally Fizzles As Trade Hopes Fade, Rate Worries Return

Monday, November 5, 2018
By Paul Martin

by Tyler Durden
Mon, 11/05/2018

Last week’s four-day rally, which was driven by hopes of easing in trade tensions between the US and China, fizzled with US equity futures mixed, stocks in Europe struggling for direction and Asian shares declining on Monday as concerns over another poor Caixin Service PMI report out of China and rising US interest rates dampened risk appetite while optimism over a potential America-China trade deal receded as investors shifted focus on the US midterm elections Tuesday and the Fed’s rate decision later this week.

Asian stocks dropped as skepticism over the outcome of the trade dispute between the U.S. and China persists. While Chinese President Xi Jinping hit back against President Donald Trump’s “America First” policies, he didn’t outline any new proposals that would suggest he was prepared to meet Trump’s demands in his much-anticipated speech today. Meanwhile Berkshire Hathaway rose in pre-market trading after operating profit doubled in the third-quarter and the company bought back almost $1 billion in stock in a rare repurchase.

European telecom and utilities companies were among the biggest advancers as the Stoxx Europe 600 Index eventually edged up, though futures on the Dow and S&P 500 were slightly weaker. Major European indices are mixed, with Spain’s IBEX 35 (+0.5%) leading the gains, and Italy’s FTSE MIB (-0.4%) lagging as the index is weighed on by local banking names such as Banco BPM (-2.5%) and Intesa Sanpaolo (-2.0%) following the release of stress test results, which showed the former as the worst performing Italian lender following a slump in the nation’s bonds amid political turmoil, while Goldman Sachs analysts predicted more cuts to earnings forecasts for Italian lenders, cutting BPER Banca and Intesa Sanpaolo to “sell”. Furthermore, Barclays (-0.1%) and Lloyds Banking Group (-0.8%) were amongst the worst performers due to weak growth, credit losses and Brexit uncertainty.

Earlier shares in Asia slid following Friday’s rally and after White House economic adviser Larry Kudlow downplayed the potential for a quick deal with China and denied Washington has drafted a trade agreement with Beijing. MSCI’s index of Asia-Pacific shares ex-Japan lost 1.2% percent, slipping back toward last week’s 18-month trough. Also overnight, President Xi Jinping acknowledged conditions abroad had created some challenges for the Chinese economy, but promised to lower import tariffs and continue to broaden market access. The Shanghai Composite dropped as much as 2% before recouping most losses by the close.

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