LONDON: Stock markets clawed themselves off their lows on Monday but sentiment remained fragile after the latest flare-up in the US-China trade war sent investors scrambling into government bonds and battered emerging market currencies.
European equity markets had looked set to follow their Asian counterparts deep into the red but recovered when US President Donald Trump said China had contacted Washington overnight to say it wanted to return to the negotiating table. Beijing called for calm.
Speaking on the sidelines of a summit of major industrialised nations in France, Trump hailed Chinese President Xi Jinping as a great leader and said he welcomed his desire for a trade deal and for calm – soothing investors’ nerves after a round of more tariffs were abruptly announced on Friday.
Wall Street futures turned positive and were last up 0.5%.
European stock markets struggled to bounce to the same degree, with the pan-European Eurostoxx down marginally on the day. Germany’s DAX rose 0.29% while France’s index managed a 0.48% rise. London’s markets were closed for a holiday.
Stocks had fallen sharply in Asia before Trump spoke as investors panicked that the latest tit-for-tat tariffs would damage global growth. On Friday, Trump announced an additional duty on some $550 billion of targeted Chinese goods, hours after China unveiled retaliatory tariffs on $75 billion worth of US goods.
The MSCI world equity index, which tracks shares in 47 countries, remained 0.31% lower by 1000 GMT.
“Trump is clearly potentially exposed to a slower US economy impacting his capability to be re-elected. He is aware of this and so reacts to market volatility with some kinder words,” said Chris Bailey, European strategist at Raymond James.
“The Chinese have seen him blink and have filed this away for use later. Shorter-term I think this is the basis of some tentative deal,” he added.
Despite the more positive tone in stock markets, assets deemed safe havens remained well supported. The 10-year US Treasury bond yield hit a new 3-year low at 1.449% before rising to 1.52% – still a touch lower on the day.
It is down some 50 basis points so far this month.
The price of gold, which has boomed in recent months as nervous investors flocked to the precious metal, touched its highest since April 2013 and was last up 0.3% at $1,530.
Germany Bund yields did reverse their earlier falls. The 10-year bond rose 2 basis points to -0.657%, having earlier dropped to as low as -0.70%.