Trump Trade Falters, Sinking Stocks as Fresh Concerns Buoy Bonds

  • Oil rallies as Iraq pledges to cooperate with OPEC on deal
  • Most Asian index futures decline amid Italian bank selloff

Lee: Markets Way Ahead of Themselves on Trump, Stimulus

The Donald Trump effect is losing its sway over global financial markets as new threats to stability, including the future of Italy’s government, boosted the appeal of haven assets.

U.S. stock benchmarks slipped from records on speculation the gains sparked by Trump’s election and expectations his spending will stoke growth had gone too far. Treasuries rose as gold pared its monthly drop. Italian banks slumped with Prime Minister Matteo Renzi facing a key referendum that may see voters reject constitutional reform, prompting his resignation. A fund that holds companies that could benefit if the U.S. lifts trade restrictions with Cuba surged the most since 2014 after former President Fidel Castro’s death.

Politics have loomed large on investors’ radars this year, with the U.K.’s decision to leave the European Union and Trump’s unexpected U.S. election win whipsawing markets. The focus now switches to the Italian vote amid concern over political and economic instability should  Renzi lose the Dec. 4 referendum, with as many as eight Italian banks at risk of failing if the ‘No’ campaign prevails, according to the Financial Times. American bank stocks tumbled Monday after their value was inflated by more than $300 billion since Trump’s victory, while the dollar retreated to a one-week low.

“The Trump trades were a distraction for a while but now people are starting to look elsewhere for market drivers,” said Kevin Lilley, a manager of euro-area equities at Old Mutual Global Investors in London. “People are getting worried about the impact that a power vacuum in Italy could have on the refinancing needs of its banks. It’s a nervous market at a time when liquidity isn’t great.”

Stocks

  • The S&P 500 Index lost 0.5 percent to 2,201.75 as of 4 p.m. in New York, amid trading volumes that were about 18 percent below average for the time of day.
  • The Russell 2000 Index snapped a 15-day surge, its longest since 1996.
  • The Herzfeld Caribbean Basin Fund jumped as much as 17 percent.
  • The Stoxx Europe 600 Index slid 0.8 percent, as Banca Monte dei Paschi di Siena SpA, which holds the most Italian sovereign debt relative to tangible equity, tumbled.
  • Most Asian index futures signaled losses, with contracts on Japan’s Nikkei 225 Stock Average down at least 0.2 percent in Osaka and Chicago.

Currencies

  • The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, fell 0.3 percent in a second day of losses, reaching its lowest level since Nov. 22.
  • The pound fell the most among major currencies after European Central Bank President Mario Draghi warned that Britain’s economy would be the first to suffer if its vote to leave the EU leads to protectionist measures.
  • The yen gained 1 percent to 112.11 per dollar, extending its rebound from an almost eight-month low.
  • The euro touched its strongest level since Nov. 17.

Bonds

  • Treasuries maturing in a decade rose for the first time in three days, pushing yields down four basis points, or 0.04 percentage point, to 2.31 percent.
  • Yields on Germany’s 10-year bunds fell to 0.21 percent.
  • The spread between Italy’s 10-year note and German bunds widened to 189 basis points, the most since May 2014 on a closing basis.

Commodities

  • The Bloomberg Industrial Metals sub-index posted its biggest five-day gain since 2011, as zinc touched a nine-year high.
  • Gold saw its best day in almost four weeks, rallying 0.8 percent to $1,193.40 an ounce.
  • Palladium reached a 17-month high.
  • Oil climbed 2.2 percent in New York to $47.08 a barrel as Jabbar al-Luaibi, Iraq’s oil minister, said the country pledged to cooperate with the Organization of Petroleum Exporting Countries to reach an agreement this week on easing production that’s acceptable to all members.
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