Markets begin week on cautious footing
Global stocks are vigilant after the Group of 20’s decision to drop a pledge to avoid trade protectionism, while the Fed’s conservative guidance pushes the dollar lower
London — World stocks opened the week on a cautious footing on Monday after the Group of 20’s (G-20’s) decision to drop a pledge to avoid trade protectionism, while the US Federal Reserve’s conservative rate guidance continued to push the dollar lower.
Asian stocks were mixed, European stocks fell as much as 0.3% and US futures pointed to a fall of about 0.2% at the open on Wall Street.
The dollar fell to a six-week low, falling for four consecutive days the first time since early November.
"European equity markets have started the week with a heavy risk-off sentiment after the G-20 communiqué explicitly reflected US intentions to establish trade protectionist measures," said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
"As the world’s number-one economy is preparing to set significant barriers against the world, investors are increasingly worried," she said.
Financial leaders of the world’s biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist US after a two-day meeting failed to yield a compromise.
Breaking a decade-long tradition of endorsing open trade, G-20 finance ministers and central bankers made only a token reference to trade in their communiqué on Saturday, a clear defeat for host nation Germany, which fought the new US government’s attempts to water down past commitments.
The FTSEuroFirst index of leading 300 European shares fell 0.3% to 1,487 points, and Germany’s DAX and Britain’s FTSE 100 also fell 0.3% in early trade.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose almost 0.4% to hit its highest level in more than two years on Monday. As a result, MSCI’s global benchmark equity index was little changed.
On Friday, Wall Street was flat to negative, dragged lower by bank shares that fell along with treasury yields.
The 10-year US treasury yield has fallen about 10 basis points below 2.50% since the Fed raised rates last week for only the third time in more than a decade.
The gap between two-and 10-year yields has shrunk, meaning the yield curve has flattened. This suggests investors are sceptical growth and inflation will be strong enough to warrant a sustained cycle of rate increases, and has subsequently weighed on the dollar.
After raising rates last week, the Fed reiterated plans for a total of three rate increases in 2017, fewer than the four markets were expecting.
G-20 financial officials reiterated their warnings against competitive devaluations and disorderly currency markets. The dollar did not show much reaction, taking its cue instead from the moves in US yields.
Currency markets are also focused on a raft of speeches by Fed officials this week, including Chicago’s Charles Evans on Tuesday and Friday, chair Janet Yellen on Thursday, Dallas’s Robert Kaplan and Minneapolis’s Neel Kashkari on Friday and New York’s William Dudley on Saturday.
"Sentiment towards the dollar has deteriorated significantly," Société Générale forex analysts said in a note to clients on Monday.
The dollar index of its value against a basket of six currencies fell to a six-week low of 100.02 on Monday.
It fell 0.2% against the yen before recovering to trade flat on the day at ¥112.70, while the euro rose 0.3% to $1.0770.
Citi became the latest major bank to abandon its headline forecast for a fall in the euro to below parity with the dollar, upping its prediction for the single currency over the next six to 12 months to $1.04 from $0.98 previously.
Attention now turns to the French election, with the first presidential debate set to take place on Monday. Opinion polls show independent centrist Emmanuel Macron would lead far-right leader Marine le Pen by a hair in first-round voting, before beating her in the run-off.
In commodities, oil prices continued their downward trend as Opec supplies remained steady despite touted cuts and rising US drilling contributed to concern about a supply glut.
US crude dropped 1% to $48.29 a barrel. Global benchmark Brent fell 0.7% to $51.40.
The weaker dollar boosted gold, which rose 0.4% at $1,233/oz, after touching a two-week high earlier in the session.