Global Stocks Drop as Growth Worries Linger

Global stocks dipped Thursday, ending the New Year rally as optimism over a possible easing in U.S.-China trade tensions faded and concerns around growth of the world economy returned.

The Stoxx Europe 600 was down 0.7% in morning trading, with all of the regional indexes moving lower. Most Asian markets also posted losses, with China’s Shanghai Composite down 0.4% and Japan’s Nikkei down 1.3%, though Hong Kong’s Hang Seng Index edged up 0.2%.

Futures pointed to opening losses of 0.8% for the S&P 500 and 0.7% for the Dow Jones Industrial Average.

Equity markets have rallied in 2019 with the Stoxx Europe 600 still up 3.4% over the past week and the S&P 500 up 3%, following a volatile holiday period.

The mood turned sunnier this year as trade negotiators from Washington arrived in Beijing for the first face-to-face talks since a 90-day truce was called late last year. Analysts had been hopeful some concessions would be announced, as escalating tariffs have weighed on the world’s two largest economies and global equity markets.

But as the markets rally faded on Thursday, economists took a pragmatic tone. Steve Friedman, a senior economist at BNP Paribas Asset Management, said this week’s progress set negotiations in a “positive direction” but Beijing and Washington are still unlikely to be near a resolution.

“On some of these really intractable issues, like market access and intellectual property, the U.S. wants to see more than just pledges,” Mr. Friedman said.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was broadly flat, after the dollar dropped Wednesday following comments by two central bank officials suggesting that further rate rises may not be coming in the short-term. Minutes from the U.S. central bank’s December meeting also signaled that rate rises were unlikely for at least a few months.

Investors will be watching closely as Federal Reserve Chairman Jerome Powell gives a speech at the Economic Club of Washington at lunchtime on Thursday.

Mike Bell, global market strategist at J.P. Morgan Asset Management, said investors are grappling with two opposing concerns: that the trade war will escalate, weighing on global growth, and that the U.S. Federal Reserve will continue to lift interest rates.

“You can’t really worry about both of those things at the same time because if the trade war were to get worse, the Fed would be very unlikely to tighten monetary policy,” he said.

The 10-year U.S. Treasury yield dropped to 2.693%, from 2.728% on Wednesday. Yields move inversely to prices.

Brent crude oil was down 1.2% to $60.69 a barrel. Gold gained 0.4%.

Source: Dow Jones