US, global stocks end off to break winning streak ahead of Trump speech

PUBLISHED : Wednesday, 01 March, 2017, 6:21am
UPDATED : Wednesday, 01 March, 2017, 7:56am

Stocks in major markets dipped and the Dow snapped a streak of records while longer-dated Treasury yields fell as investors prepared for President Donald Trump’s Tuesday night address to a joint session of Congress.

The global MSCI ACWI index was off 0.2 per cent after rising more than 8 per cent since Trump’s November 8 election on expectations for a pro-business administration.

But some investors were not convinced Trump would reveal much in the way of concrete plans to realise key campaign promises such as tax reform. Some portfolio managers mentioned the possibility of a US equities correction.

“There’s significant risk for a potential delay or a watering down of the campaign promises. He can get some things done but it won’t be as phenomenal as expected,” said Paul Eitelman, Multi-Asset Investment Strategist at Russell Investments in Seattle.

Two Fed officials hint March US rate increase maybe on the table

Futures pointed to a modest open for Asian markets on Wednesday as traders await Trump’s speech in which remarks on tax and spending policies are key against a backdrop of heightened Fed rate hike views.

Nikkei futures in Chicago traded at 19,230 and Osaka futures were at 19,130, fractionally higher than the benchmark index’s last close at 19,118.99.

In Australia, stocks opened lower with the ASX 200 down 0.36 per cent in early trade. Banking stocks were mostly down.

Wall Street indexes and bond yields were not helped by fourth-quarter US data including gross domestic product growth that was below expectations. Some investors had hoped for an upward revision, according to portfolio managers.

The Dow Jones Industrial Average fell 25.2 points, or 0.12 per cent, to close at 20,812.24, breaking a 12-day run of record closing highs.

The S&P 500 lost 6.11 points, or 0.26 per cent, to 2,363.64 but still ended the day 10.5 per cent higher than where it closed on November 8. The Nasdaq Composite dropped 36.46 points, or 0.62 per cent, to 5,825.44.

Trump met U.S. state governors at the White House on Monday and said he sees “big” infrastructure spending and is seeking a military spending hike of more than 9 per cent.

“The real question becomes how much patience does the market have,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. “If you’re basing your projection on pro-growth and pro-business, it’s based on the tax reform. So what the market wants to hear is that this is still a top priority and that the process is moving ahead.”

The US dollar clawed back earlier losses and was last up 0.2 per cent against a basket of currencies. It hit a 14-year high early January but is off 0.9 per cent year-to-date.

Longer-dated US Treasury yields fell on month-end buying and shorter-dated yields rose on bets the Federal Reserve might raise interest rates as soon as March, resulting in part of the yield curve hitting its flattest since November.

The benchmark 10-year US Treasury note yield was marginally lower in late trading at 2.365 per cent, while the 30-year bond yield was down nearly 2 basis points at 2.967 per cent.

In contrast, the two-year Treasury yield, which is most sensitive to traders’ view on Fed policy, was up over 3 basis points at 1.236 per cent.

In late trading, comments from two senior Fed officials sparked a flurry of selling, with the 2-year yield jumping to its highest since December. Interest rate futures implied traders saw a nearly 57 per cent chance the Fed will raise rates at its next meeting on March 14-15, up from roughly 31 per cent late on Monday, data showed.

Oil futures dipped as OPEC-led output cuts were offset by concerns about increasing US crude production. Brent crude settled down 0.6 per cent at US$55.59 a barrel while US crude fell further to US$53.94 after settling down 0.07 per cent at $54.01.

Spot gold fell 0.4 per cent to US$1,248.31 an ounce. On Monday it had hit a 3-1/2-month high intraday but ended lower.

With additional reporting by CNBC.