Stocks, Commodities End Winning Streaks as Growth Optimism Ebbs
Weeklong rallies for global stocks and commodities ended as investors reassessed the outlook for economic growth ahead of a series of events that could set the tone on financial markets for the next six months.
The MSCI All-Country World Index fell for the first time in six days after reaching a six-month high, and the S&P 500 Index slipped from a 10-month high that took it within striking distance of a record. The Bloomberg Commodity Index was set to end the longest run of gains since March, as oil and metals fell. Bonds rose, with U.K. gilt yields declining to a record low. Emerging markets retreated.
The recent optimism that a combination of loose monetary policy and moderate global economic growth would bolster risk assets has apparently peaked, with the looming Federal Reserve meeting, followed by the Brexit vote and U.S. political conventions rife with the potential to roil markets. With stocks at multimonth highs, investors speculate there is little reason to push prices higher. Word that billionaire investor George Soros recently oversaw a series of big, bearish investments is also contributing to the tempered mood.
“With the market being priced where it’s at, there’s not a lot of room for air,” said Jim Davis, regional investment manager at the Private Client Reserve of US Bank, which oversees $128 billion. “I would not be surprised to see it back off a little more in the next week. The market has to navigate some choppy waters between now and mid-July, with the Fed next week and the Brexit vote the following.”
The MSCI All-Country World Index lost 0.8 percent at 11:40 a.m. in New York, and the S&P 500 retreated 0.4 percent. The Stoxx Europe 600 Index dropped 1 percent.
The rally that took commodities into a bull market amid weakness in the dollar had pushed the S&P 500 within 0.6 percent of its record from May 2015, overcoming pessimism sparked by the weakest jobs growth in the U.S. since 2010. Since Friday’s jobs report, investors have seen little data to make further assessments on the state of the global economy. Data Thursday indicated U.S. initial jobless claims unexpectedly fell last week to 264,000.
Support this week has come from Fed Chair Janet Yellen’s remarks that the U.S. economy is making progress and indications that policy makers won’t rush to raise interest rates. Traders have cut back their bets for a Fed rate increase, now pricing in no chance of a boost in June. December is the first month with at least even odds of a rate increase.
Banks led the early decline as Treasury yields sank to the lowest since February, denting optimism for a rebound in lenders’ profits. Wells Fargo & Co. and Bank of America Corp. slid more than 2 percent.
The MSCI Emerging Markets Index dropped 0.7 percent. Russia’s Micex slid 0.9 percent and India’s S&P BSE Sensex index lost 1 percent, dropping from the highest close since October.Commodities
The Bloomberg Commodity Index erased earlier gains, putting it on track for the first decline in seven days. Brent crude oil fell 0.9 percent to $52.04 a barrel, heading lower for the first time in four sessions, as the dollar strengthened.
Gold for immediate delivery added 0.6 percent to $1,270.4 an ounce, while platinum, palladium, aluminum and copper all retreated.Bonds
Treasuries rose, pushing the 10-year note yield to the lowest since February’s global growth scare, as renewed concern over lackluster economic expansion and a potential U.K. exit from the EU boosted the safest government securities. The 10-year yield fell three basis points to 1.68 percent.
The 30-year yield fell before an auction of $12 billion of the securities, which comes a day after an offering of 10-year notes garnered record demand from investors bidding through primary dealers.
U.K. governments bonds extended gains. The 10-year yield touched 1.22 percent, the lowest since Bloomberg started tracking the data in 1989. Bonds of the euro-area’s higher-rated nations climbed, with the German 10-year bond yield matching the 0.033 percent record low it first touched on Wednesday.Currencies
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, gained 0.3 percent, snapping a two-day drop. The U.S currency strengthened about 0.6 percent to $1.1327 per euro and was 0.5 percent weaker against the yen.
As the Fed determines when to tighten monetary policy, HSBC Holdings Plc said buying the greenback before an eventual rate increase may be a “self-defeating strategy.”
The yen gained versus the euro, reaching its strongest level in more than three years, amid increasing doubts that the Fed will tighten policy in coming months helped boost demand for the relative safety of the Japanese currency.
New Zealand’s dollar surged to the highest level in a year as the prospect of continued central bank inaction at home and in the U.S. burnished the smaller nation’s interest-rate premium. The kiwi soared as much as 2 percent to 71.48 U.S. cents.
China, Hong Kong and Taiwan markets were shut for holidays.