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● European equities steady as S&P 500 futures dip
● 10-year Treasury yields at 5-week lows amid economic and political caution
● South African rand near weakest in three months after ratings downgrade
Dollar index holds above 100 as Brexit weighs on sterling
● Oil prices slide while gold and yen rally on “haven” flows

Benchmark US interest rates are hovering at five-week lows as investors’ optimism over the “Trump trade” fades and the markets await a crucial summit between the heads of state of the world’s two biggest economies.

The 10-year Treasury yield, which moves opposite to the bond price, is down two basis points to 2.33 per cent, in line for its lowest close since February 24.

Data on Monday showing waning US automobile sales have added to a sense that investors may have been overly upbeat about the health of the consumer and prospects for the country’s economy in the wake of Donald Trump’s election to president.

Says Kit Juckes at Société Générale:

There’s an abundance of angst this morning, stemming from weak US car data, the explosion in the St Petersburg subway, the prospect of Donald Trump meeting Xi Jinping at the end of the week and the rapidly approaching French election. The mood…has taken bond yields, equity and commodity prices lower to kick off Q2. The only cure is a steadying hand from US data that will put a floor under bond yields and, given how low that floor is, send money off in search of yield again. But for now, angst everywhere.

Minutes from the Federal Reserve’s latest meeting and US payrolls data are due out on Wednesday and Friday, respectively.

Adding to the attraction of bonds is geopolitical uncertainty. Investors are nervous about Sino/US relations ahead of a meeting between president’s Xi Jinping and Donald Trump in Florida later this week, and after Mr Trump threatened to unilaterally tackle North Korea.

What to watch
Eurozone retail sales data for February are due for publication at 10:00 BST. Investors will be keen to see if a fall in the bloc’s unemployment to an 8-year low is helping lift sentiment among consumers. The euro is down 0.1 per cent to $1.0657.

The US February trade balance should be revealed at 13:30 BST, followed an hour-and-a-half later by durable goods orders for the same month.

Forex
Focus in the currency markets is directed at the South African rand, which is down 1.3 per cent to 13.8700 per dollar — in line for its weakest close of the year.

Since hitting a 20-month high on March 27, the rand has plunged nearly 13 per cent after president Jacob Zuma fired a finance minister that was well-respected by investors and triggered a rating downgrade for the country’s credit.

The South African 10-year bond yield is jumping 15bp to 9.17 per cent as traders take fright.

The Japanese yen is benefiting from the broadly cautious market tone, firming by 0.4 per cent to ¥110.44, close to the yen’s strongest level since November.

The Australian dollar is down 0.6 per cent to $0.7561 after the central bank left interest rates unchanged as expected.

Equities
The pan-European Stoxx 600 is flat, helped by Wall Street rallying off Monday’s session lows, but hindered by weakness in banks.

US index futures suggest the S&P 500 will dip another 5 points to 2,354 when trading gets under way later in New York.

Activity in Asia was curtailed by holidays for markets in China, Hong Kong and Taiwan, leaving Tokyo to take the brunt of the selling, with the Topix index off 0.8 per cent in the face of a stronger yen.

In Sydney, the S&P/ASX 200 index was down 0.3 per cent, although materials companies found support after Australia recorded its second-highest nominal trade surplus on record for February, bolstered by strong commodity prices.

Commodities
Oil prices are weaker, continuing a decline in the previous session as worries about oversupply weigh.

Brent crude, the international benchmark, is slipping 0.4 per cent to $52.90 a barrel, and West Texas Intermediate, the main US contract, is shedding 0.5 per cent to $50.01.

Gold, like the yen and Treasuries, seems to be enjoying the nervous session, the bullion gaining 0.4 per cent to $1,257 per ounce to leave it just several bucks shy of its most expensive since mid November.

Additional reporting by Hudson Lockett in Hong Kong

Copyright The Financial Times Limited 2017. All rights reserved.
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