S&P Futures, Global Stocks Slide As European Political Fears Return; Gold Jumps

www.zerohedge.com

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.