Political jitters lift gold, dent euro and French debt
NEW YORK (Reuters) – Political uncertainty ahead of European elections gave nervous investors a reason to sell the euro and kept French government debt under pressure on Wednesday, while the price of safe-haven gold hit three-month highs.
Wall Street stocks opened lower, weighed down by losses in the banking and health-care sector. European share prices turned negative, while oil recovered after a surprise draw in gasoline stockpiles.
The Dow Jones Industrial Average was down 39 points, or 0.19%, to 20,051.29 in late-morning trading, the S&P 500 lost 0.66 points, or 0.03%, to 2,292.42, and the Nasdaq Composite added 2.84 points, or 0.05%, to 5,677.05.
Three months before the final round of France’s presidential election, investors are concerned about the strong showing of far-right candidate Marine Le Pen, who has promised to take France out of the euro zone and to hold a referendum on European Union membership.
Euro-zone government bond yields fell broadly, though French debt lagged the rest, with 10-year yields falling three basis points (bps) to 1.1% but remain not far off the 17-month highs touched on Monday. Low-risk German equivalents fell 5.4 bps to 0.31%, a two-week low.
This pushed the spread between the two yields at one point to more than 78 bps, its widest since November 2012, a move that was also fueled by expectations that the European Central Bank’s bond-buying stimulus scheme has peaked.
“If you step back, the big picture still remains: that of political concerns in Europe concomitant with speculation over ECB tapering,” said Rabobank head of rates strategy Richard McGuire.
The premium investors demand to hold low-rated Italian 10-year bonds rather than German Bunds hit its highest since 2014.
Apart from German debt, investors also bought gold, which is seen as a safe investment. Spot gold hit a threemonth high of $1,244.67 an ounce.
The euro was down another 0.1% to $1.0688 after a sharp fall on Tuesday.
US crude oil was up 0.84%, or 44 cents. Brent was higher by 1.00%, or 55 cents at $55.61, after news of a large rise in inventories in US Energy Information Administration data saw prices initially fall overnight.
“The crude-oil inventory build was really terrible for the market, but the market does not seem to care because the products inventories were better than expected and are dragging crude-oil prices up with it,” said Andrew Lipow, president of Lipow Oil Associates in Houston.
The US dollar, whose predicted path higher has been interrupted lately by uncertainty over US President Donald Trump’s economic policies, ticked up 0.03% against a basket of other major currencies.
Investors are still waiting to see whether Trump makes good on his campaign pledges to cut taxes and boost spending.
“Markets know that if Trump was to come out and start talking about tax reform and infrastructure spending, the dollar would go up,” said Gavin Friend, a strategist with National Australia Bank in London. “The dollar rose a long way at the end of last year. It has come back. Now we are sitting around waiting for the next steer.”