US stocks seem set for new record; Le Pen makes mark on bonds

European stocks are easing back after a mixed Asia session as Wall Street looks to re-enter the fray at record levels.

The dollar is stronger and Treasury yields are moving up as expectations build of tighter US monetary policy, a scenario that is hurting gold.

Hot topic
European government bond markets remain a focal point for investors, after an opinion poll showed Marine Le Pen, the anti-euro far-right candidate, narrowing the gap with her rivals in the upcoming French presidential election.

The yield spread between France and Germany’s 10-year government bonds — in effect the premium investors demand for holding French debt — hit 82 basis points on Monday, the widest level since August 2012.

The new session sees benchmark Bund yields up 1bp to 0.31 per cent and equivalent maturity French bonds up 1bp to 1.08 per cent, taking the spread to 77bp. German paper is considered a haven in such circumstances and Berlin’s implied 2-year borrowing costs have fallen to a record low of minus 0.85 per cent.

Adding to the eurozone angst of late are renewed concerns about Greece’s fiscal position, which last week pushed Athens’ 2-year borrowing costs above 10 per cent. However, signs that progress is being made in resolving a dispute between creditors about Greece’s bailout funds are helping pull the 2-year yields down 14bp to 9.57 per cent.

Forex
The euro recently has been struggling to make much headway amid all this worry about the common currency’s long term future.

In the current session it is 0.1 per cent weaker versus the UK pound at £0.8506 and slipping 0.4 per cent against the US dollar to $1.0570.

Analysts at Citi said the buck might be getting a lift from comments by Philadelphia Federal Reserve President Patrick Harker who reiterated that March should be considered for the next rate hike.

Stocks
US index futures suggest the S&P 500, which was closed on Monday for the Presidents’ Day break, will inch up by 1.5 points to 2,352.7.

That would leave the Wall Street benchmark in line for another record close as hopes linger that president Donald Trump’s mooted policies of tax cuts, infrastructure spending and deregulation will support corporate profits.

But the mood across global bourses is somewhat subdued on Tuesday as bulls consolidate after the recent strong run.

The pan-European Stoxx 600, which last week recorded its highest close since December 2015, is down less than 0.1 per cent. London’s FTSE 100 is slipping 0.2 per cent, helped by miners after BHP Billiton’s results, but hurt by banks after a poorly-received report from
HSBC.