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© Reuters. Trader works at his desk as screens display market data at CMC Markets in London
By Saikat Chatterjee
LONDON (Reuters) – European equities have fallen, government bond yields have fallen and the Japanese yen has firmed up Thursday after the US government hit the Chinese telecommunications giant Huawei with severe penalties, further strengthening Sino-US trade relations.
An index of European stocks fell by 0.5% at the start of European trading, while the German index was down 0.4%. US equity futures declined 0.4%, suggesting a disappointing start on Wall Street.
Widespread weakness in European markets was somewhat offset by weak gains in Chinese and Hong Kong stock indices, which resulted in only marginal losses, as investors waited for state authorities to step in to support the market and stabilize the feeling.
"Chinese stocks are rising as markets expect the authorities to step in to support the sentiment, but this type of activity is not sustainable and, unless the trade dispute Sino-US is resolved clearly, the general sentiment will remain weak, "said Neil Mellor, senior strategist FX at BNY Mellon in London.
While benchmark indices in China and Hong Kong were up 0.3 to 0.8% at market close, bond markets signaled more difficulties for risk appetite.
Central German government bond yields flirted with their lowest level in almost three years, while Dutch bond yields were on the brink of falling into negative territory, an unprecedented trend since October 2016.
Late Wednesday, the US Department of Commerce announced the addition of Huawei Technologies Co Ltd and 70 subsidiaries to its "List of Entities" – a decision that prohibits the company to acquire components and technologies from US companies without government approval.
The decision took the global markets by surprise, the sentiment having stabilized somewhat in the previous session after the news that US President Donald Trump was considering delaying tariffs on auto imports after a series of economic data in the United States and China.
BETS GROW CUTTING RATE
While trade tensions have resurfaced on investors' radar, weak US data has also confirmed market expectations of a US interest rate cut in the coming months.
In the United States, retail sales fell unexpectedly in April, as households cut back on purchases of motor vehicles and a range of goods, while industrial production fell 0.5% in April. the third drop recorded this year.
US 10-year Treasury yields declined to 2.366%, a level close to 2.340%, the lowest in 15 months, to March 28th.
Federal funds rate futures provide for a reduction in rates by the end of the year and more than a 50% chance of being reduced by September.
"The markets are gradually setting a rate cut.This is a radical change from last year, while the consensus was three to four rate hikes a year," said Akira Takei, manager of bond funds at Asset Management One.
The decline in US yields has eroded support for the greenback with a dollar down 0.1% from a basket of rivals.
Oil prices rose in anticipation of rising tensions in the Middle East, affecting global supply despite an unexpected increase in inventories.
The barrel of West Texas Intermediate (WTI) oil reached $ 62.26, an increase of 0.5%.
Gold has risen to $ 1,296.9 an ounce.
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