Stocks Retreat With Treasuries as Dollar Advances: Markets Wrap

  • Financial shares pace losses, airlines retreat on Delta
  • Gold pares gain, while crude slips to lead commodities lower

Making the Case for Only Two Fed Rate Hikes

U.S. stocks slipped with Treasuries, while the dollar advanced as caution rippled through markets after Federal Reserve Chair Janet Yellen all but assured investors that interest rates will rise next week. 

The S&P 500 Index retreated in trading that was 12 percent below the 30-day average. JPMorgan Chase & Co. warned that hawkish Fed rhetoric has increased the likelihood for a short-term pullback after stocks reached records last week. The dollar rose as a surge in corporate bond issuance pushed up Treasury yields. Deutsche Bank AG pulled down European shares after announcing plans to raise capital. Metals slumped on Chinese growth prospects and the French presidential race continued to roil the euro.

Markets appear to be coming off recent peaks as investors price in a near-certain March U.S. interest rate increase by the Federal Reserve. Chinese Premier Li Keqiang warned of larger challenges ahead during his work report to the annual National People’s Congress gathering in Beijing. In Europe, politics has become the main market driver as election campaigns in the Netherlands, France and Germany put the status quo under threat.

“The ‘pothole’ is a political one with far-right parties gaining ground in opinion polls ahead of both a Dutch and French ballots in spring,” Luca Paolini, chief strategist at Geneva-based Pictet, said in a research note. “We are scaling back exposure to European stocks, albeit retaining our overweight stance.”

Read our Markets Live blog here.

What’s ahead for the markets:

  • Mario Draghi probably won’t flinch at Thursday’s ECB meeting even after headline inflation reached its 2 percent target in February. He’s expected to keep QE going until the end of the year with underlying price pressures muted. Other economic highlights of the week are industrial output for Germany, France and the U.K., and German factory orders.
  • U.S. jobs data for February are on tap for Friday. Employers probably added around 190,000 workers to payrolls, in line with the average over the past six months and a sign of steady job growth, economists forecast.
  • European automakers gather this week at the Geneva Motor Show.
  • Philip Hammond’s U.K. budget arrives Wednesday. The chancellor pledged on Sunday to set aside money to cushion the economy from Brexit. 

Here are the main moves in markets:

Stocks

  • The S&P 500 declined 0.3 percent to 2,375.45 at 4 p.m. in New York, paring a loss that reached 0.6 percent at its lowest in the morning. The index is up 6.2 percent in 2017.
  • Ten of 11 S&P 500 groups retreated, led by materials producers and lenders. Energy shares rose.
  • The Stoxx Europe 600 lost 0.5 percent, with Deutsche Bank dropping 5.5 percent. 
  • The Topix fell 0.2 percent as Japan moved to the highest possible alert level after North Korea fired four ballistic missiles into nearby waters. Most other Asian equity markets rose, with the Kospi erasing a loss as Samsung Electronics Co. jumped 1.2 percent.

Currencies

  • The Bloomberg Dollar Spot Index added 0.2 percent, headed for its sixth advance in seven days.
  • The euro weakened 0.4 percent to $1.0585, the worst performer among major. The yen was at 113.895 per dollar.
  • Mexico’s peso strengthened past its 200-day moving average as the country’s central bank prepared to hold its first $1 billion auction of non-deliverable forward contracts on Monday.

Bonds

  • Treasury yields were higher led by the longest-maturity issues, with the 10-year yield up by about a basis point at 2.49 percent.
  • German bonds rose, sending 10-year yields lower by one basis point to 0.34 percent on haven demand.
  • French bonds dropped as former Prime Minister Alain Juppe said he won’t enter the race for the Presidency, reducing the chances of anti-euro candidate Marine Le Pen being eliminated in the first round of voting.

Commodities

  • West Texas Intermediate crude slipped 0.2 percent to settle at $53.20 a barrel. Clashes between armed factions in Libya curbed crude output, while U.S. drilling increased.
  • Copper futures tumbled 1.6 percent after the biggest inflow of the metal in 15 years to warehouses managed by the London Metal Exchange, according to bourse data released Monday.
  • Gold futures slumped 0.1 percent to settle at $1,225.50 an ounce in New York for a fifth day of losses. That’s the longest slump since November.

— With assistance by Mark Burton, Mark Shenk, Elizabeth Stanton, and Dennis Pettit

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