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S&P equity futures followed Asian and European stocks
lower, driven by weakness in Franch and Italian markets, as French
political concerns returned; the pound tumbled after UK monthly retail
sales unexpectedly dropped pushing the dollar higher and Euro lower.
About an hour after the European open, major indices experienced softness despite no fundamental catalyst to
see Euro Stoxx 50 lower by 0.5%. The euro weakened and French bonds
declined after the French Socialist Party’s presidential candidate,
Benoit Hamon, said he’s in talks with far-left candidate Jean-Luc
Melenchon about a single candidacy that would increase the likelihood of
a stand -off with far-right front runner Marine le Pen, sending 10y OAT
yields up 5bps and 6bps wider against Germany. Gold rebounded 0.2% as a
quiet push into safe assets continued.
Global equity markets are set to end the week on a softer
footing on Friday, after setting record highs in the previous two
sessions, as investors looked for clarity on U.S. President Donald
Trump's policies on tax and trade. Confusion over US fiscal and monetary
policy has grown as traders have gone back and forth assessing the
prospects for President Donald Trump’s economics plans and the timing of
U.S. interest-rate increases. Financial conditions have continued to
tighten as March rate hike odds jumped after Yellen's congressional
testimony: the renewed uptick in 3M OIS and LIbor have yet to impact
broader asset classes.
Trump’s plans last week to unveil a “phenomenal” tax policy spurred a
rally in stocks, the dollar and emerging-market assets. In Congressional
testimony this week, Yellen warned against waiting too long to tighten
policy and said a healthier economy may warrant higher interest rates.
Speaking to Bloomberg, Naeem Aslam, chief market analyst at
Think Markets said “many do believe that the market is getting ahead of
itself and there is just too much optimism about how far Trump can go
with his fiscal and tax plans as he still needs full approval from
congress,” said “The chances of that are not that great and this is what
makes some investors a little pessimistic.”
Much of the action was again in currencies, with the USDJPY
sliding most of the overnight session, dragging global risk sentiment
lower. Although the dollar was 0.3 percent firmer on the day, it was
hovering near a one-week low against a basket of currencies .DXY and
headed for its sixth week of losses in the last eight, as investors
awaited substantive market-friendly news from President Donald Trump on
tax reform. The greenback hit a one-month high on Wednesday after U.S.
Federal Reserve Chair Janet Yellen supported a near-term rate hike due
to signs of robust economic growth. Junichi Ishikawa, senior forex
strategist at IG Securities in Tokyo said the dollar's recent bounce
lacked conviction.
"This shows that the market is still trying to work out the
implication of President Trump's policies, of which his approach to
trade may not be supportive for the dollar," he said.
The pound fell half a percent to $1.2427 after data showing
retail sales in Britain fell shaprly 0.3% month-on-month last month, on
expectations for a 0.9% rise.
The MSCI All-Country World index was headed for its fourth
straight week of gains after hitting a record high on Thursday, but
Asian and European markets eased as investors cashed in recent gains.
The MSCI's index of Asia-Pacific shares outside Japan pulled
back 0.2%, Tokyo stocks closed down 0.6 percent and the pan-European
STOXX 600 index was 0.5 percent lower, although it remained near its
highest level in 13 months.
Equities in Europe fell, paring a second weekly advance, led
by commodity producers as prices of industrial metals were dragged down
by further signs of tightening liquidity in China.
"It's too soon to tell what divergent monetary policy will
do to equity markets, but higher rates in the U.S. may help financials
do better," said Ramakrishnan.
In commodities, gold was set for its third week of gains as
political uncertainty spurred demand for the safe haven precious metal.
Spot gold was up 0.2% on the day. Brent crude futures were down 0.8%,
paring back earlier gains. OPEC sources told Reuters the producers' club
could extend its output cut in order to rein in global oversupply.
Copper was set to end the week lower as profit-taking pared back the
price of the three-month copper contract, though concerns over supply
from Chilean and Indonesian mines remained.
Bond yields slipped pretty much across the board. Yields on
10Y Treasuries hovered at 2.43% having crept higher during the week on
U.S. rate hike speculation, while yields on Europe's benchmark, German
Bunds, were down 3 basis points at 0.32%. There has been a noticeable
divide this week, with safe-haven Bunds and other core countries like
France and Austria have seeing yields rise, while Spain and Italy have
seen theirs fall for the first week in five, helped by some soothing
noises from the European Central Bank. The ECB's minutes on Thursday
indicated little appetite for curbing stimulus, setting the scene for a
divergence in central bank policy between the U.S. and Europe.
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