Treasuries Rise, U.S. Stocks Slip on Cautious Tone: Market Wrap

  • Note of caution spreads through markets amid political risks
  • Haven assets in demand, equities retreat from near records

Kit Juckes: Risk Gets Euro-Dollar Closer to Parity by May

Haven assets from Treasuries to the yen advanced, while U.S. equities slipped as a cautious tone spread through financial markets, with investors still awaiting clarification on the timing and scope of promised pro-growth policies from the Trump administration.

The S&P 500 Index retreated from near record levels, as shares most tied to economic growth struggled after wage growth and uneven retail results raised questions about the strength of the American consumer. The euro slumped amid signs of political uncertainty in France that could undermine the common currency. Gold surged to the highest since November, while 10-year Treasury yields touched a two-week low. The yen strengthened through 112 per dollar.

The Trump-fueled rally in equities faltered as investors assess how the administration will balance protectionist trade rhetoric with promised tax cuts and spending increases. At the same time, traders are assigning greater risk premiums to European countries where anti-establishment movements are gaining traction ahead of elections. Emerging-market assets advanced as slowing wage growth in the U.S. was seen giving the Federal Reserve room to wait on any planned rate hikes.

“Following the election, the positive shift in sentiment among investors, business, and consumers suggested that the probability of tax cuts and easier regulation was seen to be higher than the probability of meaningful restrictions to trade and immigration,” Goldman Sachs Group Inc. economists led by Alec Phillips wrote in note published late last week. “One month into the year, the balance of risks is somewhat less positive in our view.”

What’s coming up in the markets:

  • With a light calendar of U.S. economic data slated for the week, investors will keep an eye on political developments as the Trump administration takes swipes at the judicial branch for suspending its immigration order.
  • Fed officials will be making their first public comments since last week’s policy meeting and jobs data, with the potential to provide insight on how the slowdown in wage growth factors into assessments for the path of inflation.
  • European nations deliver factory data that should show the contribution to euro-area expansion in December. In the U.K., industrial activity may have moderated.
  • European banks including Societe Generale SA and UniCredit SpA report this week.

Stocks

  • The S&P 500 fell 0.2 percent to 2,292.55 at 4 p.m. in New York, while the Dow Jones Industrial Average slipped 0.1 percent to 20,052.30.
  • Energy shares led losses Monday, as crude fell toward $53 a barrel and natural gas futures slumped.
  • The Stoxx Europe 600 Index slid 0.7 percent as banks and carmakers led declines. The benchmark index is up just 0.1 percent in 2017.
  • Emerging-market shares climbed 0.6 percent, defying the risk-off sentiment.
  • The MSCI index of developing equities reached the highest level since September as Chinese shares traded in Hong Kong led gains on speculation pension funds would be allowed to invest in equities.

Currencies

  • The Bloomberg Dollar Spot Index added 0.1 percent. The measure has fallen for six straight weeks in its longest slide since 2010.
  • The euro weakened 0.5 percent to $1.0732.

Bonds

  • The yield on 10-year Treasuries dropped five basis points to 2.41 percent.
  • The yield difference between French and German 10-year bonds jumped to 72 basis points.

Commodities

  • Oil fell 0.1 percent in New York to $53.77 per barrel after U.S. drillers boosted rig count to the most since October 2015, according to Baker Hughes Inc.
  • Gold advanced for a third day, climbing 0.8 percent to $1,229.57 an ounce, the highest since November.
  • Nickel climbed after the Philippines reiterated plans to shutter mines, while copper rose amid the prospect of a strike in Chile.
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