After plunge, world stocks try to claw their way out of doldrums

Thursday, 20 December 2018 00:00 - - {{hitsCtrl.values.hits}}

Men look at stock quotation boards outside a brokerage in Tokyo, Japan - REUTERS

London (Reuters): Global equity and crude oil markets attempted a tentative recovery on Wednesday after three days of sharp losses that saw investors seek out the safety of bonds amid mounting pessimism over world growth.

Oil’s spectacular fall - down almost 10% since last Thursday - and world stocks’ plunge to 19-month lows have spurred speculation the US Federal Reserve might be done with tightening after its policy meeting later in the day.

While Brent crude inched up 0.7% to $56.6 a barrel after plunging 6% overnight, its 35% fall since October is sending a disinflationary pulse through the world just as trade and economic activity are cooling.

The latest jolt on the growth front came from Japan which said its export growth slowed to a crawl in November, an ominous signal for the trade-focused economy.

And on Tuesday, logistics and delivery firm FedEx, considered a bellwether for the world economy, slashed its 2019 forecast, noting “ongoing deceleration” in global growth”.

European shares opened a touch firmer and MSCI’s global equity index firmed a touch, though it remains near 19-month lows, and has fallen 6% since the start of this month, given the fragile nature of the Sino-US tariff truce and signs that company earnings worldwide are slowing.

“It’s a confluence of several important factors: the market is adjusting its outlook on growth and there is a consensus we will see a slowdown. More importantly, the market is adjusting to the idea this will translate into lower earnings growth,” said Norman Villamin, chief investment officer for private banking at Union Bancaire Privee in Zurich. “It’s being complicated by the tightening liquidity situation with the Fed expected to move today and the ECB having signalled the end of its (stimulus)”.

Futures are sticking with a two-in-three chance of a rate rise on Wednesday and Villamin expects the Fed to move twice in 2019. That’s a more hawkish call than the broader market which is pricing less than one rise in 2019, down from three not long back.

The expectations of a Fed pause and the equity selloff sent 10-year Treasury yields to the lowest since August at 2.799% - down 20 basis points in December - while two-year yields touched a three-month trough of 2.629%, sliding from November’s 2.977% peak.