Global stocks choppy on US tax reform doubts; sterling retreats

Oil steady amid Saudi tensions, rising US output

NEW YORK, Nov 13, (Agencies): World stock markets were down on Monday amid uncertainty over the fate of US tax reform efforts, while Britain’s pound fell on growing concerns about the future of Prime Minister Theresa May.

US stock indexes made little ground, with some investors seeking bargains after a few days of losses while others were put off by a dividend cut from heavyweight General Electric.

Investors were waiting for any signs of compromise on US tax policy after US Senate Republicans on Thursday unveiled a plan that would cut corporate taxes a year later than a rival House of Representatives’ bill.

The Dow Jones Industrial Average rose 10 points, or 0.04 percent, to 23,432.21, the S&P 500 gained 0.41 points, or 0.02 percent, to 2,582.71 and the Nasdaq Composite added 3.07 points, or 0.05 percent, to 6,754.01.

The pan-European FTSEurofirst 300 index lost 0.47 percent and MSCI’s gauge of stocks across the globe shed 0.30 percent and was on track for a third straight day of declines after hitting an intraday record high on Thursday.

Sterling was last down 6 percent against the dollar, on course for its biggest daily fall against the greenback since Nov 2. It was also down 0.6 percent against the euro The Sunday Times newspaper reported that 40 members of parliament from May’s Conservative Party agreed to sign a letter of no-confidence in her — eight short of the number needed to trigger a party leadership contest.

The dollar edged higher against a basket of other major currencies on Monday, recovering ground after logging a 0.6 percent decline last week. It rose 0.17 percent, with the euro down 0.05 percent to $1.1657.

Oil prices were lower, with support from Middle East tensions and record long bets by fund managers countered by pressure from rising US production.

A purge of Saudi Arabia’s leadership by Crown Prince Mohammed bin Salman has raised concerns about political stability of the region’s largest oil producer.

US crude fell 0.49 percent to $56.46 per barrel and Brent was last at $62.84, down 1.07 percent on the day.

US

Wall Street was little changed in late morning trading on Monday as GE’s dismal outlook weighed on indexes and investors fretted over the future of the US tax reform plan.

General Electric dropped 4.4 percent after the industrial conglomerate cut its 2018 profit forecast, slashed dividend and unveiled a restructuring plan.

With the third-quarter earnings season on its last leg, investors are closely tracking developments around the tax bill as well as economic data to make their bets.

At 10:48 am ET (1448 GMT), the Dow Jones Industrial Average was down 1.93 points, or 0.01 percent, at 23,420.28, the S&P 500 was down 0.94 points, or 0.04 percent, at 2,581.36 and the Nasdaq Composite was down 6.56 points, or 0.1 percent, at 6,744.38.

Seven of the 11 major S&P indexes were lower led by industrial stocks. Investors turned to defensive utilities and consumer staples stocks amid the tax bill uncertainty.

Toymaker Mattel jumped about 20 percent after a report that rival Hasbro has made an approach to acquire the company. Hasbro rose 6.6 percent.

Qualcomm rose 1.44 percent after the chipmaker rejected rival Broadcom’s $103-billion takeover bid, saying the offer “dramatically” undervalued the company.

Declining issues outnumbered advancers on the NYSE by 1,664 to 1,066. On the Nasdaq, 1,681 issues fell and 1,049 advanced.

Europe

British equities closed at nearly sixweek lows on Monday, dragged down by financial sector shares and ceding earlier gains fuelled by the weak pound.

Mid-cap firms, meanwhile, suffered their worst day in five months after the pound weakened more than half a percent against the dollar. The currency headed for its biggest loss in 11 days on news of a rebellion among Conservative MPs against the leadership of Prime Minister Theresa May.

But the pound’s tumble gave a boost to dollar-earning companies on the FTSE 100, with Unilever, Diageo and AstraZeneca up around 1 percent or more. Oil majors Royal Dutch Shell and BP also received a helping hand from the currency.

Cruise operator Carnival was the biggest gainer on the day, up 1.7 percent.

The bank added that its UK equity portfolio was “tilted towards highquality large-cap companies with significant overseas earnings which make them less dependent on the domestic economy.”

The FTSE 100 index closed 0.2 percent lower, however, as financials took a beating from political uncertainty. Shares in RBS, Lloyds, HSBC, Standard Chartered and Barclays closed lower.

The sector took as much as nine points off the index.

Mid-sized companies bore the brunt of currency weakness, with the index falling for the sixth day in a row and losing more than one percent.

Supermarket chains Sainsbury’s, Morrison’s and Marks & Spencer fell between 1.5 and 3 percent.

Analysts have also downgraded their earnings estimates for small-cap companies, indicating potential weakness ahead for the best-performing part of the UK stock market this year.

The day’s worst performer was defence contractor Babcock which sank more than 7 percent.

Defence contractor Ultra Electronics was the latest in a string of companies to issue a profit warning. Its shares plummeted to eight-year lows after it forecast a weaker second half. It closed almost 20 percent down on the day.

Liberum analysts cut their estimates for the company and removed a planned acquisition of US company Sparton from their calculations because of uncertainty about its completion.

Defence contractors Babcock fell more than 7 percent while BAE Systems lost 3.5 percent.

Coca Cola HBC shares fell 5 percent following a downgrade to “neutral” by JPMorgan.

JP Morgan analysts said investors in the bottling company should take profits and await a better entry point after a potential deal to buy a stake in Coca Cola Beverages Africa.

Asia

The pound sank against its major peers on Monday as British Prime Minister Theresa May’s future looks increasingly uncertain, while Asian equities were mostly down after a recent rally to multi-year highs.

Markets have surged in recent weeks — with Wall Street hitting several records and Tokyo touching 26-year highs — on optimism about the global economy and a series of strong corporate earnings.

But investors have started to cash in as worries begin to emerge about high share valuations, while there are also fears about Donald Trump’s muchvaunted tax cuts as US lawmakers struggle to agree a deal.

On equity markets Tokyo’s Nikkei ended down 1.3 percent, while Seoul shed 0.5 percent.

Sydney lost 0.1 percent on worries about the ruling coalition’s future after Prime Minister Malcolm Turnbull lost his majority when another of his MPs resigned at the weekend, the latest victim of a constitutional crisis over politicians who hold dual citizenship.

There were also losses in Bangkok and Taipei but Hong Kong closed up 0.2 percent, while Shanghai ended 0.4 percent higher.

Key figures around 0820 GMT Tokyo — Nikkei 225: Down 1.3 percent at 22,380.99 (close)

Hong Kong — Hang Seng: Up 0.2 percent at 29,182.18 (close)

Dollar/yen: Down at 113.43 yen from 113.50 yen

Oil

The Brent oil price was steady at close to two-year highs on Monday, with support from Middle East tensions and record long bets by fund managers balanced by rising US production.

Benchmark Brent crude futures were down a modest 5 cents at $63.47 a barrel by 1228 GMT but up 14 percent so far this month. US West Texas Intermediate (WTI) crude futures rose 6 cents to $56.68.

Traders said crude prices were well supported as output cuts led by the Organization of the Petroleum Exporting Countries and Russia have contributed to a reduction in excess supply that had dogged markets since 2014.

The level of inventories held by industrialised above the five-year average “has fallen by more than 50 percent in 2017, with inventories currently at around 160 million barrels,” consultancy Timera Energy said.

OPEC has sought to push stocks to the five-year average.

Hedge funds increased holdings of Brent futures and options in the latest week, extending their bet on a rally to the highest on record. Managers now hold net long positions equivalent to nearly 544 million barrels of oil.

Gold

Gold recouped some of the previous session’s hefty losses on Monday as the dollar steadied and uncertainty over a US tax reform plan stoked risk aversion, pulling equities from their recent record highs.

However, prices remained hemmed in a narrow range as investors awaited more clues on the path of US interest rates.

Spot gold was up 0.2 percent at $1,278.31 an ounce at 1440 GMT, while US gold futures for December delivery were up $4.20 an ounce at $1,278.40.

Stock markets and the US dollar are the major drivers of gold prices today, Afshin Nabavi, head of MKS said. “But as you can see, gold is going nowhere,” he said.

The metal has remained broadly within $15 an ounce of its 100-day moving average, currently at $1,277 an ounce, for most of the last month.

The metal fell 0.7 percent on Friday in its biggest one-day drop since Oct. 26, weighed down by a rise in US Treasury bond yields. Yields rose, steepening the yield curve, as traders closed out some curve-flattener positions.

The metal has been supported this year by geopolitical risks such as the North Korea’s nuclear ambitions, but a range of headwinds, from dollar strength to expectations for rising US rates, have kept it pinned in a range.

“There is a bit of safe-haven demand still supporting prices, but no new additional demand coming in, which means that prices aren’t really moving,” Capital Economics analyst Simona Gambarini said.

“Geopolitical risks have been substantially higher in the second half of the year ... and there have been record highs in US equities, (which are) probably starting to make some investors nervous.”