LONDON (Reuters) – European equities have been in the red and the Chinese yuan hit a 10-year low on Tuesday as the prospect of an escalation in the US Sino Trade War exacerbated the recent gloom in global markets.
The German Stock Index DAX is shown on the Frankfurt Stock Exchange on October 12, 2018. REUTERS / employees
Traders responded by sending the dollar up 2-1 / 2-month high, pushing up futures prices in Wall Street's badly damaged major markets, which lost between 7 and 10 percent during this month's turmoil ,[.N]
Asia also made modest gains thanks to stimulus from Beijing [.SS]but European stock markets failed to sustain momentum as some disappointing corporate results and data from France and Italy led to more caution. [.EU]
The euro hovered near a 10-week low of 1.1352 as the dollar rose to a 2 1/2-month high against a basket of the world's top six currencies.
It was the 10-year low for China's yuan in Asia that drew the most attention as it slowed to 6.9696 per dollar, prompting speculation that Beijing would tolerate a devaluation above $ 7 per dollar.
Previously, Washington had set tariffs on all Chinese imports by the end of the year without further progress at presidents Donald Trump and Xi Jinping's meetings next month, though Trump said in an interview that it was still a "big deal." possible with China.
"We do not see that the trade war will be solved in the foreseeable future," said Rabobank chief strategist Teeuwe Mevissen. "And there comes a time when we see all the sentiment indicators in the eurozone, but also in the US, which cool down."
There was more negative news from Italy, the other big problem for Europe at the moment, as its coalition government with the European Commission is worried about spending.
The data showed that the Italian economy was stopped in the third quarter as both domestic demand and trade flows did not drive growth.
The flat performance was the weakest since the fourth quarter of 2014, adding to the pressure on Italy's sovereign bond markets.
Italy's 10-year government bond yield rose 2.5 basis points to 3.36 percent, having previously been just 3.32 percent. IT10YT = RR The closely monitored spread over German government debt was again at 300 basis points. DE10YT = RR
Traders continued to dig up Monday's news that German Chancellor Angela Merkel will step down as the leader of the Christian Democrats (CDU), marking the end of a 13-year era dominating European politics.
Friedrich Merz, a former group leader of Merkel's conservative alliance, became the first candidate to officially throw his hat on Tuesday to follow her.
GLOBAL BEAR MARKET?
Asia's choppy rise had come when China made a fresh attempt to stabilize its stock markets.
Beijing Securities and Exchange Commission said it would promote share buybacks, listed companies' mergers and acquisitions, and increase market liquidity.
China's benchmark Shanghai Composite .SSEC and the blue-chip CSI 300 .CSI300 gained 1.0 percent and 1.1 percent, respectively, after Trump's government hit US state-subsidized Chinese chipmaker Fujian Jinhua on Monday.
Japan's Nikkei average .N225 also erased early losses, rising 1.5 percent as traders sought bargains between struck stocks. [.T]
MSCI & # 39; s broadest index for Asia Pacific equities. The MIAPJ0000PUS lost 12 percent this month and is heading for its biggest fall in October since 2008 during the global financial crisis.
"Nobody can say that the stock market bottomed out at this point, and global investor sentiment remains questionable," said Yasuo Sakuma, chief investment officer for Libra Investments in Tokyo.
The speed with which a short rally in US equities faded on Monday underscored that jittery mood.
Wall Street later showed gains of 0.4-0.5 percent, but the S & P 500 will start near a six-month low after plummeting nearly 10 percent from last month's record highs. [.N]
The slowdown around China and global trade means that emerging market equities reach an 18-month low. The MSCI index fell for the sixth consecutive day, and the post-election rally in Brazil was already in the mirror. [EMRG/FRX]
The CBOE Global Markets volatility index, .VIX, known as the Wall Street Angle Reflector, was slightly lower, but it had risen to 27.86, the second highest level since a global volatility shock in early February.
"The likelihood of global equities becoming a bear market is increasing," said Masanari Takada, cross-asset strategist at Nomura Securities.
On the major commodity markets, oil prices fell after overnight subdued as Russia signaled that production would remain high and worries over the global economy raised concerns about crude oil demand.
West Texas Intermediate's Crude Oil CLc1 declined 1.4 percent to $ 66.13 a barrel. Brent Crude Futures LCOc1 fell 1.8 percent to just under $ 76.
Following US President Trump's warning about new tariffs on Chinese goods, zinc and copper prices fell as well as other base metals.
Trump has said in an interview with Fox News that he thinks there will be "a lot" of trading with China, but he said he has new billions of dollars if a deal is not possible.
Additional coverage by Tomo Uetake in Tokyo, edited by Angus MacSwan