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GLOBAL MARKETS-Stocks rally peters out as trade, Fed worries dominate

Published 05/11/2018, 08:51 pm
Updated 05/11/2018, 09:00 pm
© Reuters.  GLOBAL MARKETS-Stocks rally peters out as trade, Fed worries dominate
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* World stocks fall after four-day rally

* Italy leads Europe down as banks slide

* Crude slides as waivers dilute Iran sanctions

* Investors cautious before U.S. midterms

* Sterling jumps on Brexit deal hopes

By Helen Reid

LONDON, Nov 5 (Reuters) - World stocks slipped on Monday, halting a four-day recovery rally as anxiety surrounding global trade conditions and rising U.S. interest rates dampened risk appetite.

European shares followed Asia lower as investors readied for U.S. congressional midterm elections on Tuesday, while sterling briefly climbed on a newspaper report that a Brexit agreement was imminent.

Oil prices fell as the reimposition of U.S. sanctions against Iran's fuel exports was softened by waivers that will allow some countries to still import Iranian crude, at least temporarily. O/R

U.S. stock futures were down 0.3 percent amid concerns a trade deal between the United States and China may not be struck soon. ESc1 NQc1

"After a four-day rally people tend to become a bit exhausted - and just generally I feel like everyone's on hold until the (end-November) G20 and also the Fed coming up," said Gregory Perdon, chief investment officer at Arbuthnot Latham.

"Our sense is absolutely that there's a lot of cash on the sidelines right now."

Overnight, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 1.2 percent, slipping back towards last week's 18-month trough.

Chinese blue-chips fell after White House economic adviser Larry Kudlow denied Washington has drafted a trade agreement with Beijing. Xi Jinping acknowledged conditions abroad had created some challenges for the Chinese economy, but promised to lower import tariffs and continue to broaden market access. market hasn't been paying as close attention as they might normally because they've been a bit distracted by the spectre of a trade war. But the policy response out of China has been massive," said Arbuthnot Latham's Perdon.

Emerging stocks .MSCIEF tumbled 0.9 percent.

With the Federal Reserve meeting on Wednesday and Thursday, the prospect of even tighter U.S. monetary policy after strong economic data is also on investors' minds.

Markets are now pricing in a higher probability of a December rate hike with further tightening to 2.75-3.00 percent seen through 2019.

Tighter monetary policy, a stronger dollar, and trade tariffs have created what Citi strategists call "Trump's triple tightening" this year.

"This ...has slowed growth and raised risks around the world," they wrote.

Investors were also cautious ahead of the U.S. midterm elections.

Opinion polls show a strong chance the Democratic Party could win control of the House of Representatives after two years of wielding no practical political power in Washington, with Trump's Republican Party likely to hold the Senate. spooking the market is not Congress or Senate - what's spooking the market is the volatility of Trump," said Perdon. "I'm not convinced if there's a change of control that would be able to temper that."

BREXIT HOPES BOOST STERLING

Sterling briefly jumped to a two-week high on hopes of a Brexit deal, before paring gains to trade up 0.2 percent at $1.2990.

A Sunday Times report that an all-UK customs deal will be written into the agreement governing Britain's withdrawal from the European Union drove the pound GBP= to $1.3062, its highest since Oct. 22.

May's office said the report was speculative, but that 95 percent of the withdrawal agreement was settled and negotiations were ongoing.

The dollar index .DXY that measures it against a basket of major currencies was little changed. The euro held flat at $1.1389 EUR= .

Core euro zone bond yields fell as expectations of faster U.S. rate hikes, doubts over Sino-U.S. trade talks and the mid-term elections prompted more defensive positioning.

Italian bond yields rose, however, driving bank stocks .FTIT8300 down 1.8 percent.

Italy's FTSE MIB was Europe's worst-performing index as Goldman Sachs (NYSE:GS) analysts predicted more cuts to earnings forecasts for Italian lenders, cutting BPER Banca and Intesa Sanpaolo (MI:ISP) to "sell".

U.S. crude CLc1 fell 0.3 percent and Brent LCOc1 was down 0.2 percent.

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