Stocks retreat as Trump trade deflates; dollar hits 4-mth low

Oil dips towards $50 on doubts over output cut

NEW YORK, March 27, (RTRS): Stocks, the dollar and US long-dated Treasury yields slipped on Monday as investors fretted that US President Donald Trump’s defeat over healthcare reform foreshadowed difficulties delivering other campaign promises, in particular fiscal stimulus.

Trump’s failure to rally enough support from his own Republican party - which controls both houses of US Congress - to repeal and replace Obamacare spurred a rush to safe-haven assets such as gold, the Japanese yen and the Swiss franc.

MSCI’s all-country world equity index was down 0.16 as the fall in risk appetite dominated Asian and European stock markets.

The index was dragged down further after a lower open on Wall Street when main US stock indexes hit their lowest levels in six weeks.

“The markets around the globe are falling as a rethinking of the ‘Trump Trade’ begins to focus on reality,” Peter Cardillo, chief market economist at First Standard Financial in New York, wrote in a note.

“While we don’t expect a full-blown correction to commence at this time, we do see rising negative sentiment replacing the ‘Hope Trade.’”

The Dow Jones Industrial Average fell 66.4 points, or 0.32 percent, to 20,530.32, the S&P 500 lost 5.56 points, or 0.24 percent, to 2,338.42 and the Nasdaq Composite dropped 6.13 points, or 0.11 percent, to 5,822.61.

European shares were hit by losses among miners and banks. Europe’s broad FTSEurofirst 300 index dropped 0.5 percent at 1,477.12.

The US dollar fell to its lowest since November against a basket of currencies as investors lost confidence in prospects for a US fiscal spending boost under the Trump administration.

The dollar index had risen to a 14-year high near 104.00 in early January when expectations for inflation-boosting stimulus under the Trump presidency were at their peak. On Monday, the index slipped below 99.0, its lowest since Nov. 11, two days after the results of the presidential vote.

The weaker dollar helped boost gold. Spot gold was up 0.95 percent at $1,255.70 an ounce, after hitting a 1-month high of $1,261.03 an ounce, earlier in the session.

US long-dated Treasury yields fell to one-month lows on Monday, knocked by growing uncertainty about whether the Trump administration could deliver on its campaign promise to bolster the economy.

US 30-year bond prices rose 15/32, yielding 2.976 percent. Earlier, yields slid to 2.96 percent, their lowest since Feb. 28.

“This is just follow-through from Friday. There is disappointment over the inability to pass the reform of Obamacare,” said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.

“There was also some concern over the time line over the tax reform,” he added.

Meanwhile, oil fell further towards $50 a barrel, pressured by uncertainty over whether an OPEC-led production cut will be extended beyond June in an effort to counter a glut of crude.

Brent crude was last down 14 cents, or 0.28 percent, at $50.66 a barrel. US crude was down 33 cents, or 0.69 percent, at $47.64 per barrel.

US

US stocks were well off session lows on Monday as investors sought bargains after a rough start on Wall Street following the defeat of President Donald Trump’s first major legislative action.

Republicans were forced to pull a healthcare bill on Friday after failing to gather the votes needed in Congress to repeal and replace the Affordable Care Act also called Obamacare.

The bill’s failure led investors to question Trump’s ability to deliver on his ambitious agenda of tax cuts and simpler regulations - key catalysts that have sparked a record-setting rally on Wall Street.

“It is less of a panic sell and more of digesting the information and looking beyond the healthcare reform act to the next bit of information, which is going to be tax reform and spending on infrastructure,” said Mark Watkins, regional investment manager at the Private Client Group at US Bank.

“With the economy continuing to improve, I would look at any pullback as a buying opportunity at this point in time,” Watkins said.

At 12:49 p.m. ET (1649 GMT), the Dow Jones Industrial Average was down 59.46 points, or 0.29 percent, at 20,537.26, the S&P 500 was down 5.17 points, or 0.22 percent, at 2,338.81 and the Nasdaq Composite was down 0.34 points, or 0.01 percent, at 5,828.40.

The S&P 500 financial index came off a two-month low on Monday, while other major S&P sectors trimmed losses.

Healthcare was the only sector in the black, propelled by gains in drugmakers and hospital operators.

Prices of safe-haven gold pared some gains after hitting a one-month high, while the CBOE Volatility index, Wall Street’s fear gauge, eased from the day’s high of 15.11.

Still, the Dow remained on track for the eighth straight day of losses - its longest losing streak since 2011.

Declining issues outnumbered advancers on the NYSE by 1,754 to 1,127. On the Nasdaq, 1,511 issues fell and 1,248 advanced.

The S&P 500 index showed 11 new 52-week highs and seven lows, while the Nasdaq recorded 44 new highs and 45 new lows.

Asia

China stocks slipped on Monday, as any optimism felt from data showing surging profits at industrial firms was offset by fresh property curbs and signs that monetary policy may be further tightened.

The blue-chip CSI300 index fell 0.3 percent, to 3,478.04 points, while the Shanghai Composite Index shed 0.1 percent to 3,266.96 points.

Offering fresh signs of China’s economic recovery, profits of the country’s industrial firms surged 31.5 percent in the first two months of 2017 from a year earlier, as commodity prices jumped.

But the market may have already factored in solid profit improvements, as company earnings have been firm, while fresh measures to ward off asset price bubbles had some impact.

China introduced rules to curb the purchase of new commercial property in Beijing by individuals in the government’s latest step to cool the property market, while the central bank chose not to inject funds into the banking system citing “relatively high levels of liquidity”.

Ye Song, fund manager at Chang Xin Asset Management, wrote in an annual fund report on Monday that the market will likely be volatile in the near term as good news co-exists with bad news.

On the bright side, listed companies’ profitability is improving due to the economic recovery, and equities are a better investment than bonds and property amid the government’s deleveraging campaign, he wrote.

On the darker side, “interest rates are climbing higher, while the property curbs and deleveraging efforts cast doubt on the sustainability of the recovery, suppressing equity valuations.”

Most sectors lost ground, dragged lowered by consumer and infrastructure stocks, as investors took profits after a recent strong rally, while banks and transport plays firmed.

Oil

Oil fell further towards $50 a barrel on Monday, pressured by uncertainty over whether an OPEC-led production cut will be extended beyond June in an effort to counter a glut of crude.

A committee of ministers from OPEC and outside producers agreed on Sunday to look at prolonging the deal, stopping short of an earlier draft statement that said the committee recommended keeping the measure in place.

International benchmark Brent crude was down 70 cents at $50.10 by 1333 GMT, after falling as low as $50.06. US crude was down 84 cents at $47.13.

“These are troubling times for oil bulls,” said Stephen Brennock of oil broker PVM. “Against a backdrop of rising US crude output and underwhelming OPEC-led efforts to normalise bulging global oil inventories, positives are in short supply.”

A number of ministers from the Organization of the Petroleum Exporting Countries and other producers met in Kuwait to review the progress of their supply cut, which initially runs until the end of June.

OPEC and 11 other producers including Russia agreed in December to reduce their combined output by almost 1.8 million barrels per day in the first half of this year.

While many in OPEC have called for prolonging the curbs, Russia has been less definitive. Energy Minister Alexander Novak said on Sunday it was too early to say whether there would be an extension.

“We would see the relative lack of reaction in the price perhaps as a reflection of some disappointment that nothing more concrete was forthcoming,” analysts at JBC Energy said in a report, referring to the conclusion of Sunday’s talks.

There is “increasing scepticism” in the market as to whether a rollover of the cuts can be agreed, JBC added.

Oil also came under pressure from further evidence that higher prices as a result of the OPEC-led supply cut are helping boost supplies in the United States.

Gold

Gold rallied more than 1 percent on Monday after US President Donald Trump’s failure to push through a healthcare reform package on Friday raised questions over his ability to deliver promised tax cuts and spending plans.

That knocked the dollar to a fourmonth low versus a basket of currencies and drove a drop in stock markets, with European indices sliding nearly 1 percent in early trade and US stocks opening lower.

Spot gold was up 1.2 percent at $1,259.11 an ounce by 1350 GMT, having touched a one-month high of $1,261.03. US gold futures for April delivery were up $10.70 at $1,259.20.

“This is entirely driven by the weaker US dollar,” Commerzbank analyst Carsten Fritsch said. “The euro is at the highest level versus the greenback since immediately after the US election. The Trumpflation trade is being priced out after the failure to repeal Obamacare.”

Gold had already rallied sharply from its March 15 low after a less hawkish policy statement than expected from the Federal Reserve, which dampened expectations for near-term increases in US interest rates.