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Friday, August 09, 2019, 17:20
Trade tensions, Italy and Brexit worries drive Europe lower
By Agencies
Friday, August 09, 2019, 17:20 By Agencies

Trade tensions worries and the prospect of early elections in Italy and Britain hit European markets on Friday, while the week's search for safety left gold on coursefor its best week in three years, Japan's yen at an eight-monthhigh and bonds surging.

A turbulent week dominated by a drop in China's currency was not finished yet. A report that Washington was delaying a decision about allowing some trade between US companies and Huawei again spooked Asia.

Europe was then led lower by a 1.6% slump in Italian stocks after Matteo Salvini, the leader of one of the country's ruling parties, the League, pulled his support for the governing coalition on Thursday.

Snap elections have been likely for months, but markets werewhen Salvini - who’s publicly insisted the government would lastits full five years - pushed for a new poll.

Investors dumped Italian government debt, pushing yields - which move inversely to prices - on Rome's 10-year bonds up 21 basis points to 1.749%, the biggest daily increase in almost a year.

London's FTSE and the pound were under strain, too, after reports the new UK Prime Minister, Boris Johnson, was planning for an election after an Oct 31 Brexit. The pound weakened versus the dollar after data showed the UK economy shrank 0.2% in the second quarter, contracting for the first time in more than six years. Treasuries ticked higher alongside gold, which traded just above US$1,500 per ounce. Sterling fell to two-year lows against the euro.

US stock futures didn't look much brighter. Theywere down as much as 0.5% in Europe, although the S&P 500 had had its best session in two months on Thursday.

MSCI's broadest index of world shares, which tracks 47 countries, was drifting back into the red and heading for its second straight week of declines, after one of its worst days in years on Monday.

Asia ex-Japan ended down 2.3% for the week after data showed China's first decline in producer prices in three years, compounding the Huawei disappointment.

The offshore yuan managed to hold steady, even after China's central bank set its daily midpoint fixing at 7.0136 per dollar, the weakest since April 2, 2008.

The yen meanwhile rose as much as 0.4% against the dollar to 105.70 yen, an eight-month high.

"The news about Huawei triggered the rise in the yen," said Junichi Ishikawa, senior foreign exchange strategist at IGSecurities. "This is a reminder that the US-China trade dispute remains a risk, and this risk is not receding."

Other safe havens also gained. Gold rose above US$1,500 on Friday, its highest in more than six years, en route to its best week since April 2016.

Oil prices held most of the previous day's gains as well, on expectations of more production cuts by OPEC.

Brent crude hovered at US$57.32 per barrel. US WestTexas Intermediate (WTI) crude fell 0.1% to US$52.50.

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