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GLOBAL MARKETS-Stocks back to 'risk-on' after Trump trade war scare

Published 12/04/2019, 08:42 PM
Updated 12/04/2019, 08:48 PM
GLOBAL MARKETS-Stocks back to 'risk-on' after Trump trade war scare
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* European stocks recoup losses
* U.S./China trade deal still possible-Bloomberg report
* Wall Street futures jump
* European yields tick higher

By Julien Ponthus
LONDON, Dec 4 (Reuters) - European stocks recovered on
Wednesday from their losses the day before, when U.S. President
Donald Trump surprised world markets by saying a trade deal with
China could wait until after the 2020 presidential election in
November.
Morning gains became a rally when Bloomberg, citing
unidentified sources, said the United States and China were in
fact moving closer to agreeing on the amount of tariffs that
would be rolled back in phase one of a trade deal.
While Trump had dashed hoped for a preliminary agreement and
triggered a sell-off in stocks on Wall Street and in Asia, the
Bloomberg report caused a brutal swing that took traders by
surprise.
"There are playing with the nerves of investors," said
Mikael Jacoby, a senior equity sales trader at Oddo Securities,
adding there was a sense of fatigue and frustration watching
markets swing on the basis of headlines and tweets.
"One day they will guide positively, another negatively",
Jacoby said, noting that markets could be expected to continue
their up and down moves until a trade agreement is reached.
Fresh U.S. tariffs on Argentina and Brazil, plus a threat to
impose duties on French goods, are fuelling fears that risks are
tilting towards an escalation of the crisis.
The pan-European equity index STOXX 600 .STOXX , which had
slumped 2.2% since the beginning of the month, was up 1%.
Futures markets were signalling a Wall Street opening in
positive territory.
Before the Bloomberg report, European trading showed little
reaction when data indicated euro zone business activity stayed
near stall speed last month. Manufacturing continued to drag on
the dominant services industry.
Euro zone government bond yields yo-yoed in early trading,
but speculation on a possible U.S./China agreement pushed
10-year German Bund yields up 1 basis point to -0.337%
DE10YT=RR .
Yields across the euro area followed suit, rising by 1 to 2
bps. In the United States, the 10-year Treasury yield jumped by
1.75%, then fell back to about 1.74%.

TOO COMPLACENT?
The latest trade war scare ended a rally that had lifted the
S&P 500 since early October, when top diplomats from China and
the United States met and outlined an initial agreement that
Trump said he hoped could be sealed within weeks.
U.S. Commerce Secretary Wilbur Ross said that if no
substantial progress was made soon, another round of duties on
Chinese imports, including cell phones, laptops and toys, would
take effect on Dec. 15.
The U.S. House of Representatives passed a bill proposing a
stronger response to a crackdown on Muslims in western China,
drawing swift condemnation from Beijing on Wednesday, to add
another layer of tension. Beijing's handling of unrest in Hong
Kong has also drawn criticism from Washington.
"The market was too complacent, thinking both superpowers
would be able to compartmentalize these issues away from the
broader trade narrative," Stephen Innes, chief Asia market
strategist at AxiTrader, said in a note.
In currency markets, the euro retreated against the dollar
to 1.1068 EUR= . The Japanese yen JPY= and Swiss franc
CHF= , seen as safe havens, were down 0.1% and 0.2%
respectively.
Gold XAU = rose 0.4% to $1,482.9 per ounce.
Brent crude LCOc1 futures were up 0.58% at $61.17 a
barrel. U.S. West Texas Intermediate crude CLc1 gained 0.52%
to $56.39 per barrel.

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