World equities markets sink as global trade war fears build

Should the US follow through, it would be “a considerable step-up in the trade dispute between US and China and would start to seriously threaten global growth" experts have warned. (AFP/Bryan R. Smith)
Updated 02 August 2018
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World equities markets sink as global trade war fears build

  • World equities markets were in the red Thursday as trade war fears ratcheted higher
  • China’s Foreign Minister Wang Yi on Thursday called on the US to remain “cool-headed”

LONDON: World equities markets were in the red Thursday as trade war fears ratcheted higher after the United States said it was looking at more than doubling threatened tariffs on a range of Chinese imports.
In London, investors’ expectations were vindicated as the Bank of England hiked its key interest rate by a quarter-point to 0.75 percent.
The British central bank’s nine-member monetary policy committee voted unanimously to raise rates for only the second time since the global financial crisis, but left unchanged its quantitative easing stimulus, just as most analysts had expected.
More broadly, US and European markets followed in the footsteps of Asian trading floors, which sank after the US administration confirmed it was considering hiking levies to 25 percent from the announced 10 percent on $200 billion of Chinese goods.
Should the US follow through, it would be “a considerable step-up in the trade dispute between US and China and would start to seriously threaten global growth,” wrote Konstantinos Anthis, head of research at ADSS.
China’s Foreign Minister Wang Yi on Thursday called on the US to remain “cool-headed,” but that appeal alone appeared to do little to shift the mood on trading floors.
In Germany, the DAX blue chip index was down 1.6 percent in afternoon trading, with analysts blaming US tariff threats that would hit car manufacturers especially hard.
Aside from the threatened duties on Chinese imports, President Donald Trump has also warned the US may impose hefty tariffs on cars imported from the European Union, after already imposing steel and aluminum levies.
Investors and analysts welcomed the BoE’s interest rate announcement, with head of research at London Capital Group Jasper Lawler tweeting: “Bravo to BOE for finally putting rates on course to something normal.”
However he added: “Shame it has left it so late that chances of a quick reversal are much higher.”
Rising interest rates are a boon for savers but ramp up the cost of credit for consumers and companies.
On currency markets, the pound edged slightly higher in response to the rate hike, only to then drop below the level seen just before the meeting.
“The pound’s sharp decline could be based on investors acknowledging that today’s rate hike is a ‘one-and-done’ move,” wrote Lukman Otunuga, research analyst at FXTM.
“With Brexit uncertainty, cooling inflationary pressures and global trade tensions likely to obstruct the central bank’s efforts to raise interest rates, the pound remains vulnerable to downside risks,” he added.
The BoE’s decision came a day after the US Federal Reserve held its fire on interest rates, even as it highlighted the strength of the US economy and labor markets, indicating rate hikes ahead.
On the oil markets, higher oil production in petrol kings Saudi Arabia and Russia coupled with global trade war fears weighed down on prices Thursday, according to a note from Commerzbank.

MARKETS
New York — Dow Jones: DOWN 0.8 percent at 25,143.99 points
London — FTSE 100: DOWN 1.1 percent at 7,566.90
Frankfurt — DAX 30: DOWN 1.7 percent at 12,525.01
Paris — CAC 40: DOWN 0.8 percent at 5,454.80
EURO STOXX 50: DOWN 1.1 percent at 3,115.43
Tokyo — Nikkei 225: DOWN 1.0 percent at 22,512.53 (close)
Hong Kong — Hang Seng: DOWN 2.2 percent at 27,714.56 (close)
Shanghai — Composite: DOWN 2.0 percent at 2,768.02 (close)

CURRENCIES
Euro/dollar: DOWN at $1.1626 from $1.1659 at 2030 GMT
Pound/dollar: DOWN at $1.3059 from $1.3124
Dollar/yen: DOWN at 111.63 yen from 111.86 yen

OIL
West Texas Intermediate: DOWN 25 cents at $67.41 per barrel
Brent Crude: DOWN 17 cents at $72.22 per barrel


Moody’s upgrades Egypt’s rating to B2, expects more economic growth

Updated 18 April 2019
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Moody’s upgrades Egypt’s rating to B2, expects more economic growth

  • Moody’s believes Egypt’s large domestic funding base would support its resilience to refinancing shocks
  • The ratings agency expects energy price hikes as part of Egypt’s fuel subsidy reform

CAIRO: Rating agency Moody’s has upgraded Egypt’s sovereign rating, saying ongoing economic reforms will help improve its fiscal position and boost economic growth.
Moody’s upgraded the long-term foreign and local currency issuer ratings of Egypt to B2 from B3. The outlook was changed to stable from positive.
The decision was based on “Moody’s expectation that ongoing fiscal and economic reforms will support a gradual but steady improvement in Egypt’s fiscal metrics and raise real GDP growth,” the agency said in a statement late on Wednesday.
Moody’s also said it believed Egypt’s large domestic funding base would support its resilience to refinancing shocks despite the government’s very high borrowing needs and interest costs.
Moody’s said it expected a steady improvement of Egypt’s fiscal position, “albeit from very weak levels.”
Maintained primary budget surpluses combined with strong nominal GDP growth would help reduce the general government debt/GDP ratio to below 80 percent by the 2021 fiscal year from 92.6 percent in the 2018 fiscal year, it said.
Egypt’s fiscal year runs from July to June.
Moody’s also said it expected energy price hikes as part of Egypt’s fuel subsidy reform, which it believed would be completed in the 2019 fiscal year. This, along with the fiscal reforms implemented in the last few years, would allow the government to maintain the primary budget balance in surplus in the next few years, Moody’s said.
The upgraded rating was expected, but still good news for Egypt, said Allen Sandeep, head of research at Naeem Brokerage.
“It should help its case for new international bond issuances as we move forward,” he said.
Egypt is pushing ahead with tough economic reforms as part of a three-year $12 billion IMF loan deal signed in 2016.
The reforms, aimed at attracting investors who fled during the 2011 uprising, have included new taxes, deep cuts to energy subsidies and a currency devaluation. The reforms have helped the economy recover, but have also put the budgets of tens of millions of Egyptians under strain.