Asian shares pause after five-day rally

Asian stocks barely moved on Thursday as soft U.S. retail sales data raised fears about the health of the world’s largest economy, sucking the steam out of a five-session rally, while hopes of a Brexit deal kept sterling volatile.

South Korean, Australian and New Zealand indexes were all in negative territory. Chinese shares were mostly flat while Japan’s Nikkei (N225) ticked up and U.S. stock futures (ESc1) were barely changed.

That left MSCI’s broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) slightly higher with gains largely led by Hong Kong’s Hang Seng index (HSI).

The S&P 500 (SPX) shed 0.20% on Wednesday after data showed U.S. retail sales contracted in September for the first time in seven months, in a potential sign that manufacturing-led weakness could be spreading to the broader economy.

“It looks like the trade war has claimed yet another victim,

in addition to diminished business confidence

and reduced investment spending,

as consumers are starting to chicken out,”

said Chris Rupkey, a chief financial economist at MUFG Union Bank.

Given U.S. consumption has been one of few remaining bright spots in the global economy, the data fanned worries the Sino-U.S. trade war would tip the world into recession.

U.S. Treasury Secretary Steven Mnuchin said on Wednesday that U.S. and Chinese trade negotiators were working on nailing down a Phase 1 trade deal text for their presidents to sign next month.

But he also said there were no plans for another high-level meeting on the trade deal outlined last week.

“While the U.S. suspended a hike in tariffs,

it hasn’t gone as far as scrapping the tariffs altogether,

so it is hard to expect a quick pick-up in the economy,”

said Yoshinori Shigemi, global market strategist at JPMorgan (NYSE: JPM) Asset Management.

‘NOT FOR THE FAINT-HEARTED’

Losses in equities were somewhat offset by a solid start to the earnings season, though that is partly because investors have already marked down their expectations substantially. Earnings for S&P 500 companies are forecast to show a decline of 3% for the quarter, according to Refinitiv data.

Bank of America (N: BAC) shares rose 2.0% following its quarterly results. Netflix (O: NFLX) rose 9.9% in after-hours trade after its earnings beat Wall Street estimates.

In the currency market, soft U.S. retail sales took the shine out of the dollar.

The dollar index (=USD) was last at 98.005, having touched its lowest since Aug. 27 on Wednesday.

Against the yen, it was a flat at 108.73 after peaking at 108.90 on Tuesday.

The euro stood at $1.1074 (EUR=), near a one-month high of $1.1085 hit in U.S. trade on Wednesday.

Sterling traded at $ 1.2821, having risen to as high as $1.2877 on Wednesday, its loftiest since mid-May.

The pound has risen more than 5% in the past five sessions on hopes the United Kingdom and the European Union can strike a fresh deal in an EU leaders’ summit on Thursday and Friday.

Investors have welcomed optimistic comments from key officials in the last few days. British culture minister Nicky Morgan said late on Wednesday there is a good chance of a deal.

Still, many doubts remained, not the least of which is if British Prime Minister Boris Johnson can ensure his government and factious parliament approve the plan.

“Trading the British pound intra-day at the moment is not for the faint-hearted with deep pockets required,”

said Jeffrey Halley, senior market analyst at OANDA.

“The street clearly wants to take GBP higher on any Brexit hope,

but traders should be aware that the pullback will be equally as ugly if progress stalls or collapses yet again.”

In commodities, oil prices slipped after industry data showed a larger-than-expected build-up in U.S. crude stocks, adding to concerns that demand for oil around the world may weaken amid further signs of a global economic slowdown.

Brent crude (LCOc1) futures fell 0.47% to $59.14 a barrel while U.S. West Texas Intermediate (WTI) crude (CLc1) lost 0.7% to $52.98.

Spot gold was slightly weaker at $1,488.31 an ounce.

According to investing

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Hassan Hadaoui
Hassan Hadaoui
Writer and Economist
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