World shares lower as US-China drone row drags on sentiment

KELVIN CHAN, AP Business Writer

HONG KONG (AP) — Most major world stock benchmarks fell and the dollar’s rally ended Monday as investors fretted over the potential political and economic fallout from China’s capture of a U.S. underwater glider.

KEEPING SCORE: European shares retreated in early trading. France’s CAC 40 lost 0.4 percent to 4,813.47 while Germany’s DAX slipped 0.1 percent to 11,391.50. Britain’s FTSE 100 dipped 0.3 percent to 6,991.78. U.S. stocks were poised to open higher. Dow futures added 0.2 percent to 19,828.00 and broader S&P 500 futures edged up 0.1 percent to 2,257.90.

DRONE DISPUTE: China’s seizure of a U.S. Navy unmanned underwater glider is one of the most serious incidents between the American and Chinese militaries in years. China says it will return the device but President-elect Donald Trump, who takes office in a month, tweeted China can keep it. The incident in the busy, dispute South China Sea is making investors nervous as markets enter a week of holiday-thinned trading.

ANALYST INSIGHT: “It remains to be seen whether Mr. Trump will soften his tone when he moves to the White House,” said Piotr Mays, a strategist at Rabobank. “Based on his previous remarks it is reasonable to assume that the relationship between the U.S. and China will be completely different under Trump’s presidency, which may have serious implications for the markets due to potentially significant changes in global trade policies and geopolitical risk.”

JAPAN POLICY: Investors are sitting tight as they watch for the outcome of the Bank of Japan’s final monetary policy meeting of the year, which wraps up on Tuesday. Central bankers may revise their outlook for Asia’s second biggest economy based on recent data, including import and export figures released Monday that showed a surplus for the third month in a row.

DEFICIT DOWN UNDER: New government forecasts show a bigger Australian budget deficit than expected as growth in the resources-driven economy slows to 2 percent, more than previously forecast, as the China-powered mining boom falters. However, that means policymakers are under no pressure to follow the Fed’s lead and tighten up on monetary policy, which could derail the stock market.

ASIAN SCORECARD: Japan’s benchmark Nikkei 225 index slipped 0.1 percent to end at 19,391.60 while South Korea’s Kospi edged 0.2 percent lower to 2,038.39. Hong Kong’s Hang Seng shed 0.9 percent to 21,832.68 and the Shanghai Composite index dipped 0.2 percent to 3,118.08. Australia’s S&P/ASX 200 rose 0.5 percent to 5,562.10. Benchmarks in Taiwan, Singapore, Indonesia, Thailand and the Philippines retreated.

CURRENCIES: The dollar eased to 117.49 yen from 117.91. The euro rose to $1.0465 from $1.0452.

ENERGY: Crude oil rose 44 cents to $52.34 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1 to settle at $51.90 a barrel on Friday. Brent crude, the international standard, rose 25 cents to $55.46 a barrel in London.