Europe, Asia Stocks Extend Losses on Political Concerns -- Update
18 May 2017 - 7:44PM
Dow Jones News
By Riva Gold and Kenan Machado
Stocks in Europe and Asia extended losses Thursday as growing
nervousness about the White House and sharp moves in the dollar
jarred financial markets.
The Stoxx Europe 600 fell 0.6% amid declines in banks and auto
companies, while London's export-heavy FTSE 100 index shed 1% as
the British pound climbed 0.5% to $1.3032 on retail sales data.
Markets in Asia ended lower after Wall Street's biggest selloff
since September interrupted a period of calm.
Recent political developments have put U.S. President Donald
Trump's administration on the defensive and investors world-wide
are more worried about his ability to push through proposals on tax
cuts, deregulation and infrastructure spending. News that former
FBI Director Robert Mueller will serve as special counsel to
oversee a federal investigation into alleged Russian interference
in the 2016 presidential election did little to calm investors.
"Everything happening in Washington is likely to if not derail,
at least delay what the market expectation has been about
significant tax reform and tax reduction," said David Lafferty,
chief market strategist at Natixis Global Asset Management.
Futures pointed to a flat opening for the S&P 500 on
Thursday, but Asian equity markets were broadly lower, echoing the
selloff in the U.S. on Wednesday Japan's Nikkei Stock Average fell
1.3% as a global flight to haven assets boosted the value of the
yen on Wednesday, weighing on the country's exporters, particularly
in the auto sector. Japanese life insurers, which are large holders
of U.S. government bonds, were hit by earlier declines in Treasury
yields.
Declines in Japanese shares came despite economic data released
Thursday that showed first-quarter gross domestic product expanded
2.2% from a year earlier.
Australia's S&P/ASX 200 fell 0.8%, while stocks in Shanghai
dropped 0.5% even as expectations for more infrastructure spending
boosted construction and property stocks. Hong Kong's Hang Seng
Index was 0.6% lower but Tencent shares hit record highs after the
Chinese tech giant's first-quarter net profit rose 58% on the year,
beating estimates.
Some investors were concerned about the general stability of the
White House and the remote but growing chance of U.S. political
risk knocking shares off record highs later this year.
"Two weeks ago, we were talking about policy, and now we're
talking about all of the political firestorm swirling around the
White House," said Brett Wander, CIO for fixed income at Charles
Schwab Investment Management.
Still, the dollar showed signs of recovering Thursday from its
worst session since March as investors assessed the longer term
implications for financial markets. The WSJ Dollar Index was up
0.2% on Thursday after erasing its postelection gains.
10-year U.S. Treasury yields steadied around 2.219% Thursday
from 2.216%, following their biggest daily decline since the week
of the U.K. referendum in June. The spread between the two-year and
10-year Treasury yields closed at less than 100 basis points for
the first time since the November election on Wednesday.
Some investors said the recent developments were unlikely to
detail a buoyant economy and solid corporate earnings. The first
quarter earnings season was the best in six or seven years, with
double-digit growth seen in all the main regions, according to
Emmanuel Cau, global equity strategist at J.P. Morgan. Japan
recorded the highest earnings per share growth, followed by Europe
and the U.S., the bank said.
That also means the Federal Reserve should remain on course to
raise rates, with investors still pricing a roughly 65% chance of a
rate rise in June, according to CME Group data.
"From a fundamental investor perspective, I'm not seeing
anything that shakes my view that the U.S. economy is ticking along
just fine," said James Athey, a manager at Aberdeen Asset
Management, which manages $385.2 billion in assets.
David Winning,
John Wu
and Joanne Chiu contributed to this article.
Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at
kenan.machado@wsj.com
(END) Dow Jones Newswires
May 18, 2017 05:29 ET (09:29 GMT)
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