Trump trade hits trouble: Stocks and dollar sink; bonds in demand

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European bourses add to losses after Wall Street’s slide
● Futures indicate the S&P 500 will follow up Tuesday’s 1.2% drop with a 0.2% dip
Bond yields fall and gold rises as investors seek traditional havens
● The dollar index remains below 100 as investors pare Trump trades
Oil prices slip amid a sour mood in the commodities sector

Markets are rattled by Wall Street’s biggest fall in more than five months as investors fret that US President Donald Trump’s pro-growth policies could take longer than expected to come to fruition.

The S&P 500 closed down 1.2 per cent on Tuesday, dragged lower by financial stocks as bond yields fell. Lower oil prices added to the pressure as it encouraged selling of shares in energy-focused groups.

It was the first time since October 11 that the equity index ended more than 1 per cent lower, snapping a 109-session streak.

“A reverse in US equity indices has proven contagious to all regions and all markets,” notes Kit Juckes, a macro strategist at Société Générale. “More than half of the Trump feelgood factor feels tarnished now.”

The US stock barometer hit a record closing high of 2,396 at the start of March, having jumped 12 per cent since Mr Trump won the November 8 election. Amid an improving economic environment the rally was also predicated on hopes the new president’s policies of tax cuts, infrastructure spending and reduced financial sector regulations, would help boost corporate profits.

But the mood has soured, for now, amid growing concerns over how long it could take the new president to achieve his policy goals — worries fuelled by hurdles facing Mr Trump’s efforts to push through a new healthcare law.

“Markets are getting jittery ahead of Thursday’s House healthcare vote in the US and how it represents a larger test of Trump’s entire mandate. That means, potentially, the future of fiscal reform and subsequently the Trumpflation story,” said analysts at Citi.

The S&P 500 banking index surged 34 per cent between the US election and its March 1 high as hopes for rising interest rates and less regulation lifted optimism on company profits.

But the sector lost 3.9 per cent on Tuesday as investors worried that deregulation may be delayed and as bond yields pulled back in the wake of the Federal Reserve’s less hawkish than expected comments that followed last week’s rate rise.

The sell-off on Wall Street came after a survey released by Bank of America Merrill Lynch showed investors considered stocks at their most overvalued since 2001.

Fixed income
Investors warmed to the perceived safety of government debt as stocks dropped, and that trend is continuing on Wednesday.

The yield on 10-year US Treasuries, which last week hit 2.63 per cent in the wake of the Fed’s rate rise, is down another 2 basis points to 2.41 per cent, its lowest this month. Yields fall when prices rise.

The equivalent maturity German Bund yield is off 3bp to 0.43 per cent, UK gilts are easing 1bp to 1.25 per cent and Japanese paper dipped nearly 1bp to 0.06 per cent, according to Reuters data.

Forex
The dollar is continuing to struggle as traders trim their Trumpflation trades.

The dollar index, which tracks the greenback against a basket of peers, is off another 0.1 per cent to 99.68, holding below the 100-point mark through which it fell on Tuesday for the first time in a month.

The Japanese yen is displaying its haven status. It strengthened by 0.8 per cent in the previous session and is adding another 0.3 per cent to ¥111.43 per dollar, its best level since November, buoyed by data showing that exports grew more than analysts expected in February.

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