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GLOBAL MARKETS-Trade friction hits stocks, yuan slumps to lowest in over a decade

Published 05/08/2019, 09:51
Updated 05/08/2019, 10:00
© Reuters.  GLOBAL MARKETS-Trade friction hits stocks, yuan slumps to lowest in over a decade
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GC
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ESM24
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DE10YT=RR
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US10YT=X
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MIAPJ0000PUS
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* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* MSCI ACWI at lowest in over a month
* Yen, bonds and gold benefit
* Yuan falls to over 10-year low

By Ritvik Carvalho
LONDON, Aug 5 (Reuters) - Global stocks fell for a sixth day
on Monday as an escalation of trade tensions between the United
States and China spooked markets and the yuan fell to its lowest
levels in over a decade.
Safe-haven assets including the Japanese yen, core
government bonds and gold rallied.
European shares fell to two-month lows, with the
pan-European STOXX 600 index .STOXX shedding 2% on top of the
2.5% it lost on Friday - its worst day so far in 2019 - after
U.S. President Donald Trump signalled another round of tariffs
on Chinese imports.
"Markets had not been expecting the latest US-China trade
talks to conclude with any significant breakthrough last week,
but very few expected President Trump to slap 10% tariffs on
$300 billion worth of Chinese goods," said Hussein Sayed, chief
market strategist at FXTM.
MSCI's All Country World Index .MIWD00000PUS , which tracks
shares in 47 countries, was down 0.7% on the day. That put it
down almost 2% including Friday's loss.
Asian shares suffered their steepest daily drop in 10
months, with MSCI's broadest index of Asia-Pacific shares
.MIAPJ0000PUS outside Japan sinking 2.5% to depths not seen
since late January.
The VIX .VIX volatility index - also known as Wall
Street's "fear gauge" - rose to 19.02%, its highest since May
13, while Europe's equivalent .V2TX hit its highest since
early January.
S&P 500 futures ESc1 were 1.35% lower.
"We reiterate our view to scale back equity positions to
strategic allocations after strong gains year to date, amid the
ongoing trade-related uncertainties," Credit Suisse analysts
wrote in a note to clients.
The biggest mover in currencies was the yuan, which fell
past the key level of 7 to the dollar as Chinese authorities -
expected to defend the currency at that level - allowed it to
break through to its lowest in the onshore market since the 2008
global financial crisis.
In offshore markets, the yuan CNH=EBS fell to its weakest
since international trading of the Chinese currency began.
Headed for its biggest one-day drop in four years, it was last
down 1.4% at 7.0744 in offshore markets. FRX/
"Over the past couple of years, China has kept the renminbi
stable against the basket, but with the renminbi TWI
(trade-weighted index) now testing the lower end of the range in
play since 2017, investors may turn nervous, introducing another
dose of volatility," Morgan Stanley strategists wrote in a note
to clients.
The currencies of other Asian economies closely linked with
China's growth prospects also dropped.
The Korean won KRW= fell 1.4% against the dollar, on
course for its biggest one-day loss since August 2016. The new
Taiwan dollar fell more than 0.7% TWD= .

BID FOR SAFETY
Japan's yen, which investors tend to buy in times of risk
aversion, rose 0.7% to its highest since a January flash crash.
JPY=
Dutch 30-year government bond yields turned negative for the
first time as euro zone yields sank further amid concerns about
U.S.-China trade and a no-deal Brexit. GVD/EUR
U.S. 10-year yields US10YT=RR dived 7 basis points to
1.77%, while Germany's 10-year bund yields fell to -0.53%
DE10YT=RR . The three-month to 10-year U.S. yield curve was at
its most inverted in 11 years.
The Swiss franc CHF= was also boosted by safe-haven
demand. Trump is also eyeing tariffs on the European Union, but
has yet to make a formal announcement. The euro EUR= was 0.3%
higher to the dollar at $1.1137.
Sterling GBP= hovered near 2017 lows at $1.2117, pressured
by concerns about Britain exiting the EU without a trade deal in
place. GBP/
Oil extended losses with U.S crude CLc1 down 1.55% at
$54.8 and Brent LCoc1 down 1.55% at $60.92.
Gold prices jumped more than 1% to their highest in more
than six years, with spot gold prices up 1.1% to $1,456.51 per
ounce. XAU=


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