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By Elizabeth Howcroft
LONDON, July 16 (Reuters) - European shares fell on Thursday
after deteriorating U.S.-China relations and worse-than-expected
Chinese domestic consumption data hurt Asian stocks and global
risk appetite.
The White House said on Wednesday it had not ruled out
further sanctions on top Chinese officials to punish China for
its handling of Hong Kong. The United States also said it was studying the national
security risks of social media applications including China's
TikTok and WeChat. China said it will respond to "bullying" tactics from
Washington, but that it will stick to the Phase 1 trade deal the
countries reached last year. With market attention turning towards the European Central
Bank's policy meeting, Europe's STOXX 600 .STOXX was down 0.7%
at 1045 GMT, having fallen sharply in early trading before
recovering slightly.
The index closed at a five-week high in the previous
session, boosted by signs of progress in COVID-19 vaccine
trials. London's FTSE 100 recouped some of its early-morning losses
but was still down 0.5% on the day .FTSE and the caution
looked set to continue in the U.S. session with S&P 500 futures
down 0.7% ESc1 .
The MSCI world equity index .MIWD00000PUS , which tracks
shares in 49 countries, was down 0.5%.
Although China's GDP returned to growth in the second
quarter, up 3.2%, retail sales data was worse than expected.
"We're going to see a mechanical V-Shaped recovery without a
doubt but it's the economic effects, things like discretionary
spending, that I think people's concerns are centred around,"
said Russell Silberston, investment strategist at Ninety One.
"The big concern that we have is the economic scarring – how
much damage is being done," he said.
In currency markets, the dollar index firmed, up 0.2% at
96.218 =USD .
The euro, which hit a four-month high of $1.1452 on
Wednesday, edged back down, at $1.13945 EUR=EBS .
Oil prices eased after OPEC and allies such as Russia agreed
to taper record supply curbs from August, though the drop was
cushioned by hopes for a swift pick-up in U.S. demand after a
big drawdown from the country's crude stocks. Brent crude LCOc1 fell 31 cents to $43.48 a barrel, and
U.S. West Texas Intermediate crude CLc1 was down 45 cents, at
$40.75 a barrel.
Gold prices eased somewhat, down 0.3%, having spent the week
edging up and coming close to a nine-year peak XAU= .
The International Monetary Fund's top official warned on
Wednesday that a second major wave of infections could trigger
more economic disruption. Rising COVID-19 cases have seen some countries re-impose
lockdown measures, but the effect of new infections on daily
market moves is not clear-cut. The more economies shut down, the
more stimulus from central banks and governments markets expect.
"If cases are rising and we see more lockdowns then that
uncertainty will almost definitely hit markets," Ninety One's
Silberston said.
"But, big picture, markets have rallied massively from the
lows on the basis of stimulus so there's a counter-argument that
says: Ok, if we do go into lockdown, we'll see even more
stimulus," he said.
ALL EYES ON EU
In Europe, the focus is on the European Central Bank's
meeting. No new measures are expected to be announced, as the
ECB has already bought record amounts of debt as part of its
emergency response to COVID-19. "Though recent comments from ECB officials have shown signs
of an emerging optimism, our economists don't believe these
signal a change in the policy stance, and expect the commitment
to "substantial monetary policy stimulus" to be repeated,"
Deutsche Bank strategist Jim Reid wrote to clients.
The ECB will deliver its decision at 1145 GMT, and ECB
President Christine Lagarde will hold a news conference at 1230
GMT.
The ECB meeting is likely to be overshadowed by the European
Union summit on Friday and Saturday, at which the proposed 750
billion euro ($854 billion) coronavirus recovery fund will be
discussed. Euro zone bond yields held broadly steady. The benchmark
German 10-year Bund yield was at -0.455% DE10YT=RR .
= 0.8783 euros)
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Emerging markets http://tmsnrt.rs/2ihRugV
The ECB's QE programme https://tmsnrt.rs/3fk6HIS
Euro zone bond markets during the coronavirus crisis https://tmsnrt.rs/3gMe7Vy
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