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GLOBAL MARKETS-Flare-up of Sino-U.S. tensions over Hong Kong knocks world shares off 22-month high

Published 11/20/2019, 04:58 PM
Updated 11/20/2019, 05:00 PM
GLOBAL MARKETS-Flare-up of Sino-U.S. tensions over Hong Kong knocks world shares off 22-month high

GLOBAL MARKETS-Flare-up of Sino-U.S. tensions over Hong Kong knocks world shares off 22-month high

* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Most Asian stock markets ease, along with S&P futures
* European shares fall half percent
* Brent licks wounds after suffering sharpest drop in 7 wks
* U.S. Treasury yields fall further, flatten curve
* Next major event is minutes of Fed's last meeting

(Updates throughout, changes byline, dateline)
By Sujata Rao
LONDON, Nov 20 (Reuters) - World stocks were knocked off
22-month highs on Wednesday as a renewed flare-up in Sino-U.S.
tensions and the creeping return of U.S. recession fears fuelled
a bid for bonds and other "safe" assets such as gold.
European equities tumbled half a percent at the open, edging
further off recent four-year highs hit when it had appeared
Washington and Beijing were about to agree the first phase of a
trade deal. Wall Street futures were marked lower while oil
prices suffered their biggest daily loss in seven weeks.
The mood in markets soured after the U.S. Senate angered
China by passing a bill requiring annual certification of Hong
Kong's autonomy and warning Beijing against violently
suppressing protesters. China demanded the United States stop
interfering in its internal affairs and said it would retaliate.
U.S. President Donald Trump also threatened to up tariffs on
Chinese goods if a trade deal is not reached soon. "Markets have taken a bit of a wobble due to the talk about
Hong Kong, but they had rallied a lot in recent weeks on
expectations of a (trade) deal," said Salman Ahmed, chief
investment strategist at Lombard Odier.
Ahmed said both sides needed a deal to be signed -- Trump
cannot afford a recession because of his re-election bid next
year, while China's economy is slowing markedly.
"I think we are looking at a short-term setback rather than
a major issue that would derail the process. The bill still has
to be signed into law by Trump so there's a high probability he
will use it as leverage against China."
MSCI's index of Asia-Pacific shares ex-Japan .MIAPJ0000PUS
tumbled 0.7%, Japan's Nikkei .N225 fell 0.8% and Shanghai blue
chips .CSI300 lost 1%. MSCI's global index .MIWD00000PUS
slipped 0.3%, ending a three-day winning streak.
Wall Street was tipped for a weaker start with futures
ESc1 down 0.2%.
U.S. shares closed just below record highs on Tuesday,
however, and world stocks remain just 0.5% off all-time peaks
hit last year.
"It was noticeable that fixed income markets rallied despite
equity markets being stable, suggestive of a market that remains
cautious about the growth outlook," ANZ told clients.
U.S. 10-year Treasury yields, which have fallen in six out
of the past seven sessions, slipped 5 basis points to 1.735%, a
2-1/2 -week low US10YT=RR .
German bonds fell for the third straight day to touch a
2-1/2 week low DE10YT=RR , shrugging off European Central Bank
Chief Economist Philip Lane's comment that the euro zone economy
would not fall into a recession.
"It's all about sentiment on trade ... We have this
classical risk-off trade taking place again," Rainer Guntermann,
a rates strategist at Commerzbank, said.

THE R WORD
Moves on commodity prices and bond markets imply fears of
economic recession may be creeping back.
Japan's October exports fanned those fears further, tumbling
at their quickest rate in three years, with shipments to China
and the United States suffering big falls. U.S. crude stocks rose far more than expected, the American
Petroleum Institute said, driving Brent crude LCOc1 into a
2.6% slide. Brent fell another half percent, inching towards the
$60 mark last breached three weeks ago. A marked flattening of the curve -- the gap between two-year
and 10-year yields is at its narrowest in more than two weeks --
also hints at a return of recession fears. The curve inverted
earlier this year, returning to normal only after three U.S.
interest rate cuts.
But Federal Reserve officials have hinted there will be no
further easing for now, a message the U.S. central bank may
reiterate later in the day when it releases minutes from its
last meeting. Markets are now pricing in just a 0.8% chance of a
December rate cut FEDWATCH .
Dour forecasts from retailers Home Depot and Kohl's also
fuelled worries about U.S. consumer spending, which has so far
been extremely robust, in contrast to manufacturing.
"We've had a bit of topping out of the U.S. consumer in the
past couple of months, possibly we are seeing some catch up
between consumer and manufacturing sectors," Lombard Odier's
Ahmed said.
On currencies, the dollar nudged lower versus the yen to
108.4 JPY= but firmed 0.13% versus a basket of currencies
.DXY . Gold rose 0.4% XAU= .

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Asia stock markets https://tmsnrt.rs/2zpUAr4
Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
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