Bengaluru: US stocks fell and Treasuries rose as global financial markets turned cautious amid rising tension in the Middle East and renewed political discord in America. The dollar stayed lower as a key gauge of inflation accelerated.
Most major equity indexes were lower but gave back some of their early losses after President Donald Trump’s provocative tweets about Russia and his warning that America’s preparing to attack Syria. Banks and financial firms led decliners. Crude oil continued to climb, pushing past $66 (Dh242) a barrel.
The market had rallied this week as trade tensions appeared to ease. The flight to higher-quality assets spurred a jump in gold and sent the 10-year Treasury yield to 2.78 per cent. Aluminium headed for its biggest winning streak since 1988.
“Another sharp two-day rally in the stock market ... followed by another tweet from the President ... followed by another reversal of the rally,” Matt Maley, an equity strategist at Miller Tabak, wrote in an email to clients. “It’s becoming a broken record. The White House can say that the blame really goes to China and Russia ... and maybe they’re correct ... but there is no doubt that the President’s comments/tweets have been THE catalyst to stop the sharp short-term bounces we have seen in recent weeks.”
The market’s respite from ebbing protectionist concerns proved short-lived as geopolitical risk ratcheted up, with Trump, who is preparing his response to an attack that Russia says didn’t happen, saying relations between the two countries are worse than they have ever been.
Phillips Curve
That also overshadowed the latest reading on consumer prices in the world’s largest economy. The key inflation measure accelerated to the highest in a year as a drag from mobile-phone costs faded, bearing out the Federal Reserve’s forecast for a pickup in price gains.
“We have to keep in mind that the Fed doesn’t target this gauge of inflation, lessening its importance for what interest rates might do,” James McCann, senior global economist at Aberdeen Standard Investments, wrote in an email. “Inflation does seem to be building slowly and it looks like the Phillips Curve isn’t dead after all, but we need to be very careful seeing today as a signal of strong domestic inflation.”
Earlier in Asia stocks were mixed, with indexes in China and Hong Kong posting the biggest gains as People’s Bank of China Governor Yi Gang offered more details on pledges to open the world’s second-largest economy. The announcement was seen as further alleviating trade tensions with the US. Russia’s currency slumped to a 16-month low and yields on local debt jumped to the highest level since November. The cost of insuring Russian dollar debt against default jumped to the highest since August.
