U.S. stocks mixed after rout; Treasuries retreat

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(Oct 11): U.S. stocks looked to end the longest losing streak of Donald Trump’s presidency, as technology shares rebounded from the worst rout in seven years. The dollar fell and Treasuries rose.

The S&P 500 remained near the lowest since July, while the Nasdaq 100 Index rallied, after a rout of more than 4%. Major benchmarks swung as much as 70 basis points in early trading that saw volumes surge to 63% above the 30-day average. Retailers and software companies paced gains, while utilities slumped. Delta Air Lines led industrial shares higher, after reporting profits. The Cboe Volatility Index fell from the highest level since April.

The S&P 500 is down almost 5% in the past six days. Futures fell as much as 1.2% overnight, but erased gains on weak inflation data that prompted speculation the Federal Reserve won’t be forced to speed up the pace of tightening. Higher interest rates make the short list of reasons for the spike in Treasury yields and concurrent equity sell-off in recent days, along with signs that the Trump trade war is starting to hit corporate profits.

As U.S. stocks look to halt the longest slide of Donald Trump’s presidency, Wednesday’s rout roiled Asian and European equities. China’s Shanghai Composite gauge closed down more than 5% and Taiwan’s technology-heavy benchmark plummeted more than 6%. Europe’s main equity index fell to the lowest since early 2017. The euro and the pound both advanced.

Investors seeking to pinpoint the cause of the current rout in equities have no shortage of culprits: U.S companies are increasingly fretting the impact of the burgeoning trade war, while the same issue prompted the IMF to dial down global growth expectations. In the tech sector, which was a key driver of the rally that pushed American equities to a record just a month ago, expensive-looking companies have been roiled by a hacking scandal.

Against this backdrop, the Federal Reserve has been trimming its balance sheet and raising interest rates, provoking the ire of an unpredictable American president and helping force a repricing of riskier assets.

“What you’re seeing right now is a bit of a panic — we wouldn’t say this looks like the end of the cycle,” said  William Hobbs, head of investment strategy at Barclays Investment Solutions in London. “You’ve got to try to keep the skin in the game for as long as possible, because it’s an incredibly profitable period of the cycle to be invested through if you can keep your nerve.”

Elsewhere, West Texas Intermediate crude slumped back to around US$72 a barrel amid a broad decline in commodities and as OPEC cut estimates for demand. Precious metals bucked the trend, and gold jumped. A Bloomberg index of cryptocurrencies dropped as much as 11%.

Here are some key events coming up:

The U.S. Treasury is in the midst of US$230 billion worth of debt auctions this week. The IMF and World Bank will hold meetings in Bali beginning Friday, where finance chiefs from around the world will gather. JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co kick off earnings season for U.S. banks on Friday.

These are the main moves in markets:

Stocks

The S&P 500 Index rose 0.2% as of 9:54 a.m. New York time. The index closed lower for a fifth day. The Dow Jones Industrial Average was little changed and the Nasdaq indexes rose. The Stoxx Europe 600 Index declined 1.3% to the lowest in 20 months. The MSCI Asia Pacific Index sank 3.4%, hitting the lowest in almost 17 months with its ninth consecutive decline and the largest tumble in eight months. The MSCI Emerging Market Index sank 3.1%, reaching the lowest in about 18 months on its sixth straight decline and the biggest tumble in more than two years.

Currencies

The Bloomberg Dollar Spot Index decreased 0.4% to the lowest in more than a week, on the largest dip in three weeks. The euro increased 0.6% to US$1.1589, the strongest in almost two weeks on the biggest increase in three weeks. The British pound climbed 0.3% to US$1.324, the strongest in three weeks. The Japanese yen advanced less than 0.05% to 112.23 per dollar, reaching the strongest in more than three weeks on its sixth straight advance.

Bonds

The yield on 10-year Treasuries climbed one basis point to 3.17%. Germany’s 10-year yield decreased two basis points to 0.53%, the lowest in more than a week. 

Britain’s 10-year yield dipped three basis points to 1.697%. The spread of Italy’s 10-year bonds over Germany’s rose eight basis points to 3.0305 percentage points.

Commodities

West Texas Intermediate crude decreased 1.3% to US$72.19 a barrel, the lowest in two weeks. Gold increased 1% to US$1,206.60 an ounce, the highest in three weeks, on the biggest climb in more than a week.