Stocks are at their lowest for three weeks, but no respite for emerging markets

LONDON (Reuters) – Trade talks between Washington and Beijing continued to put pressure on global markets on Wednesday, as troubled stocks and emerging currencies were weak, with the Indian rupee reaching a record high.

In Asia, MSCI's main non-Japan Asia-Pacific index was reduced to its 10th consecutive day in the red, its longest run of losses since September 2000.

Stock markets in Shanghai, Hong Kong and Tokyo all closed lower, bringing emerging stocks to a new low in 15 months. The all-country MSCI equity index rose slightly, seeking to extend two modest earnings sessions that resulted in six consecutive days of losses.

"What the market needs is a sign of loosening commercial rhetoric, a little ramp-up," said Salman Ahmed, chief investment strategist at Lombard Odier. "That should be enough because the (economic) fundamentals are solid. But you need a trigger point and until now we have not seen it.

The escalation of tensions between the two largest economies in the world for several months shows no signs of slackening. President Donald Trump said on Tuesday that the United States is taking a firm stance with China. This has reinforced expectations for the forthcoming announcement of new levies on Chinese exports.

Earlier, China told the World Trade Organization (WTO) that it wanted to charge the United States $ 7 billion a year in retaliation for failing to comply with a decision in a previous trade dispute.

Equity markets also came under pressure from US two-year bond yields, which peaked around 10 years Tuesday, partly as a result of stronger data on the strength of the US economy.

These data drove Wall Street to a close close, driven by technology and energy stocks, and futures contracts for the Nasdaq benchmark, which is heavily technology-driven, rose 0.2% on Wednesday. . The S & P500 and Dow Jones indices, however, seemed set for flat openings.

In Europe, a pan-European index rose 0.2% from the lows of the past five months, although it gave up earlier solid gains.

Ahmed said another positive catalyst for the markets could be signals from the US Federal Reserve that could slow the pace of rate hikes. But given the flow of strong US data, which seems unlikely, this week's data showed that the optimism of US small businesses had reached its highest level.

"In 2015, when emerging markets faced a lot of difficulties, the Fed recognized the effect of international coaching. This time, it has not happened, "he added.

UNDER PRESSURE

Higher trade rankings and US interest rates pushed the emerging currency index down almost 7% this year. The yuan reached its lowest level in two-and-a-half weeks against the dollar, while major Asian countries pulled back and kept the Australian dollar, which is strongly linked to China's trade, at its lowest point since February 2016.

The dollar depreciated against a basket of currencies as Canada's hopes for concessions to resolve disputes over the redesign of the North American Free Trade Agreement increased.

But emerging currencies remained under pressure.

While the hardest hit Turkish lira and Argentine peso remained at record levels, the Indian rupee continues to plummet, bringing losses since the beginning of the year against the dollar to more than 12%.

"The rupee … is symptomatic of the general situation in the emerging markets, but it also includes particular problems: the budget deficit increases and the current account deficit increases due to rising commodity prices", said Cristian Maggio. Emerging Markets Strategy Officer at TD Securities.

Markets will also keep an eye on US bonds. Ten-year yields are just above record highs one month after steady numbers in the labor market and the Treasury kick-started a record sell-off of $ 150 billion.

The political risk in the meantime has returned to the radar of investors in Italy and Great Britain. Italian bond yields, which fell to six-week lows in recent days, rose after local media reported that 5-Star, one of the ruling coalition parties, was demanding 10 billion euros to put in universal income plans.

The pound also slipped from its five-week high this week against the dollar, while the cautious optimism sparked by the Brexit-EU trade deal eased .

Oil prices rose $ 2 on Tuesday, with futures close to $ 80 per barrel as Hurricane Florence advanced and US sanctions began to weigh on Iranian exports.