Markets WRAP: Rand closes at R14.40/$

There is more than a week left until the new year, but at this point, it’s almost official: European stocks will post the worst year since 2008. The Stoxx Europe 600 dropped 0.8% on Friday as of 10:45 in London, taking this year’s loss to 14%.

Meanwhile, the blue-chip Euro Stoxx 50 is less than 1% away from entering a bear market after hitting the threshold earlier. It’s a testimony to how fragile sentiment is that even news of Chinese stimulus couldn’t lift the gloom, with US futures pointing to a third day in the red on Wall Street.

Tensions between America and China are simmering again after China demanded that the US withdraw espionage charges against Beijing officials. A government shutdown also looms in the US.

Expectations for tax cuts and easier monetary policy in China at least boosted basic resources and autos, the only two European sectors in the green on Friday. Looking back at 2018, it wasn’t just US stocks that ruined the fun.

Almost existential questions plaguing European politics didn’t help, and many of these will carry through to 2019. With UK Prime Minister Theresa May still struggling to sell her Brexit deal to Parliament, behind closed doors her inner circle is reportedly mulling other options, such as a second referendum.

Meanwhile, a plunge in Italian manufacturing and consumer confidence shows that while the country has reached a deal with Europe over its budget, its economic challenges still loom large. The year has seen an exodus out of European stocks, and this shows no signs of relenting.

The week through December 19 saw the fourth-biggest weekly outflows for European stocks ever at $5.4 billion, according to a Bank of America Merrill Lynch note that cited EPFR Global data.

The one consolation is perhaps that at least European stocks haven’t slid as much as US equities this month. But a casual look at the two indexes’ historical performance will tell you there’s little chance European shares can fare well when American stocks are struggling. And while European stocks are cheap, they’re not the only bargains around. Investors looking to diversify from America may prefer emerging markets, especially with Chinese stimulus on the horizon. - Bloomberg

OVERVIEW: The pain across equity markets continued on Friday, with European and Asian stocks retreating in the wake of more losses on Wall Street and US futures showing few signs of a rebound.

Major currencies were calmer as bonds in Europe retreated. The Stoxx Europe 600 Index edged down at the open, with telecommunications shares leading declines as almost every sector fell.

The MSCI Asia Pacific Index headed for its fourth drop in six sessions as benchmarks slipped in Japan, China and Australia, though shares in Hong Kong rose. Futures for the S&P 500 fluctuated in a narrow range.

West Texas crude was up on the day, but remained down almost 10% this week. Treasuries were steady but most European bonds fell ahead of the Christmas break. The dollar was stable against a basket of peers though weakened versus the pound and euro.

Renewed US-China tensions and concern about a partial American government shutdown have added to the laundry list of headwinds facing riskier assets this week, all of which were compounded when the Federal Reserve proved less dovish than some investors had hoped on Wednesday.

Meanwhile, the White House is seeing more personnel turnover, with Defense Secretary Jim Mattis resigning over policy differences with President Donald Trump.

“The risks are that this weakness that we’re seeing will continue into next year,” Shane Oliver, head of investment strategy at AMP Capital Investors told Bloomberg TV in Sydney. “The Fed should come out and say, if need be, we can adjust the rate at which we undertake quantitative tightening. That would go a long way to help settle markets."

Next up, investors will get the latest US personal income and spending data on Friday, along with a gauge of inflation. These are the main moves in markets:

Stocks

Futures on the S&P 500 Index dipped 0.2% as of 08:05 London time. The Stoxx Europe 600 Index declined 0.3% to the lowest in more than two years. The UK’s FTSE 100 Index rose 0.1%. Germany’s DAX Index sank 0.5% to the lowest in about two years. The MSCI Asia Pacific Index sank 0.5% to the lowest in more than 21 months. The MSCI Emerging Market Index climbed 0.2%.

Currencies

The Bloomberg Dollar Spot Index increased less than 0.05%. The euro increased 0.2% to $1.1465, reaching the strongest in almost two months on its fifth straight advance. The British pound gained 0.2% to $1.2681, the strongest in two weeks. The Japanese yen was unchanged at 111.28 per dollar, the strongest in more than 14 weeks.

Bonds

The yield on 10-year Treasuries decreased one basis point to 2.80%. Germany’s 10-year yield gained two basis points to 0.25%, the biggest rise in more than a week. Britain’s 10-year yield increased two basis points to 1.286%, the highest in more than a week. The spread of Italy’s 10-year bonds over Germany’s rose two basis points to 2.5311 percentage points.

Commodities

West Texas Intermediate crude climbed 1% to $46.34 a barrel. Gold rose 0.1% to $1,261.07 an ounce, the highest in six months. - Bloomberg

TreasuryONE said in a morning note to clients that the dollar remains on the backfoot against other major currencies while the prospect of a government shutdown in the US was also weighing heavy.

"The euro is at 1.1446 and the pound at 1.2665. EM currencies are not benefiting from this dollar weakness and we find the rand weaker this morning at 14.3600 as the risk off sentiment persists.

At 10:10, the rand was trading at R14.33.

"Wall Street fell sharply again with the Dow closing down nearly 2.0%. Asian stocks have fallen and US futures are down even further. The Nasdaq is officially in a bear market now. Gold is profiting from a safe haven perspective and is trading at $1259.95 but Oil has slipped further to $54.72."

Tokyo stocks opened lower on Friday amid worries about a possible US government shutdown and a slowing global economy, with a higher yen also weighing on sentiment.

The benchmark Nikkei 225 index was down 0.45%, or 91.92 points, at 20 300.66 in early trade while the broader Topix index was down 0.48%, or 7.34 points, at 1 509.82.

"It's inevitable that the Japanese shares suffer after days of falls in US shares with a higher yen against the dollar," Okasan Online Securities said in a commentary.

Fresh political turbulence in Washington and renewed fears over US-China relations pushed Asian markets lower Friday, as a global slump sparked by unease over Fed policy showed no signs of easing.

The resignation of US Defense Secretary Jim Mattis - seen as a moderating force on an often impulsive president - and the looming threat of a federal government shutdown alarmed investors as concern grows over weakening global growth.

US stocks endured a torrid session, the latest losses in a bruising December that has set up Wall Street for its worst year since the 2007 financial crisis, with the Nasdaq now almost 20% off its peak this year.