European stocks edge higher but Asia sinks


Friday 08.10 BST

What you need to know

  • European equities edge higher
  • Trade worries hit Chinese equities and currency
  • BoJ intervenes to buy bonds
  • Italian bond yields jump
  • Turkish lira slides to record low
  • US monthly jobs report in focus

Hot topic

European equity markets edged higher in early trading on Friday even as the deepening rift between Washington and Beijing over trade took its toll on Chinese stocks.

The better opening in Europe was in contrast to Asia, where investors are especially wary after US President Donald Trump this week stepped up the pressure on China over trade tariffs.

Those tensions helped send the renminbi to a new one-year low. The onshore renminbi exchange rate, which moves within a trading band of 2 per cent in either direction, is 0.4 per cent weaker than Thursday’s close, at Rmb6.8675 — its lowest point since late June 2017. The offshore renminbi is 0.1 per cent weaker at 6.8867, after touching a 14-month low.

“There are genuine concerns about this trade war . . . which makes any genuine retaliation from China, rather than the current rhetorical approach, an issue for markets,” said AxiTrader strategist Greg McKenna, noting that major mining stocks and copper also moved lower overnight.

Elsewhere in Europe, Italian yields jumped, with those on the benchmark 10-year bond briefly breaching 3 per cent.

Later on Friday, the US employment report is expected to show that 193,000 jobs were created in July.

JPMorgan Asset Management strategist Marcella Chow said Beijing appeared to be willing to let the renminbi be driven more by market forces, in order to relieve some pressure on the economy through cheaper exports.

“However, Chinese officials will still be wary about letting the yuan weaken too much, causing issues for capital flight and financial stability,” Ms Chow said.

The renminbi’s drop came as data showed that China’s services sector growth slowed in July as business confidence fell to a near-record low.

Forex and fixed income

The dollar index, measuring the greenback against a basket of peers, is broadly unchanged. The yen is flat at ¥111.70.

The spotlight is once again on the Turkish lira, which hit a fresh record low against the dollar of 5.0952.

In the sovereign debt markets, the Bank of Japan offered to buy ¥400bn ($3.58bn) in government bonds with maturities of five to 10 years on Friday, the latest in a string of interventions meant to curb the rise in yields on the country’s 10-year notes.

The move came as the yield, which moves inversely to price, rose in early trading to 0.129 per cent, near Thursday’s 18-month high of 0.145 per cent, before subsequently pulling back to 0.11 per cent.

The intervention came after Japanese 10-year bond yields had their biggest one-day jump in two years on Wednesday, after the BoJ tweaked its quantitative easing programme.

The yield on the 10-year Treasury is flat at 2.986 per cent, sitting just shy of the 3 per cent level it breached on Wednesday for the first time since June.

Commodities

Gold has touched its lowest level in more than a year at $1,205.95 per troy ounce, after slipping on dollar strength.

Oil prices are mixed. Brent crude is down 0.1 per cent at $73.40 a barrel while West Texas Intermediate is up 0.1 per cent at $69.04.

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