Stocks Steady as Investors Remain Cautious Ahead of Trump Inauguration -- Update
18 January 2017 - 10:24PM
Dow Jones News
By Jon Sindreu
Global markets were broadly flat Wednesday, a further sign of
the caution in financial markets ahead of President-elect Donald
Trump's inauguration this week.
The Stoxx Europe 600 remained mostly unchanged during the first
minutes of European trade, with the technology sector as the
biggest riser. The biggest loser was the media sector, which was
sandbagged by Pearson PLC's 26% drop, after the London-based
publisher warned of lower future dividends on the back of lower
profit expectations.
Despite Pearson's drag, the FTSE 100 gained 0.1%. U.S. futures
pointed to a 0.1% opening rise for the S&P 500.
Asian shares were mixed, but the main developed index, the
Japanese Nikkei, closed 0.4% higher.
Financial markets have struck a prudent tone ahead of Mr. Trump
taking office Friday, with investors appearing to have some second
thoughts about the risk-driven trades that have dominated since the
U.S. election on Nov. 8. While Mr. Trump's rhetoric against free
trade has long scared many analysts, markets initially focused on
his plans to slash taxes and regulations and boost infrastructure
spending.
Investors are now waiting for further clarity on such policies,
as well as corporate earnings, to decide whether growth and
inflation will come through, or whether markets got ahead of
themselves after the election.
"A lot of the indicators we follow are now pointing at the
market being overstretched," said Andrew Pease, global head of
strategy at London-based Russell Investments. "The U.S. economy's
fine, but markets have fully priced that in already."
In currencies, the pound fell 0.7% against the U.S. dollar to
$1.2305 after its 3% surge Tuesday, the biggest daily rise in eight
years. Sterling was bolstered by U.K. Prime Minister Theresa May
pledging to subject the final Brexit deal to a parliamentary
vote.
Nevertheless, many analysts believe that Mrs. May's announcement
that Britain is set to leave the European single market will end up
weighing on sterling at the first sign of weak economic data.
"Enjoy the party but make sure you dance close to the door,"
said Antje Praefcke, an analyst at German lender Commerzbank
AG.
The WSJ Dollar Index, which tracks the currency against a basket
of 16 others, rose 0.3%. On Tuesday, it hit a one-month low after
Mr. Trump described the currency as "too strong" in an interview
with The Wall Street Journal.
Comments by Federal Reserve Bank of San Francisco President John
Williams, who argued that gradual interest-rate increases would
leave the economy unharmed, helped the dollar to recover.
Bond yields in the U.S. and Europe rose to reflect investors'
belief that monetary policy is unlikely to become much looser.
After falling to 2.327% on Tuesday, the lowest closing since late
November, yields on 10-year Treasurys recovered to 2.347%.
Haven assets, which had been propped up as investors became
jittery ahead of Mr. Trump's inauguration, also changed direction.
Gold was broadly flat Wednesday and the Japanese yen retreated
against all major currencies.
Traders will closely monitor Wednesday evening's speech by Fed
Chairwoman Janet Yellen to gauge whether interest rates are likely
to rise at a faster or slower pace than they are currently
expecting. Further signs of tighter-than-expected policy in the
U.S. could depress Treasurys again, boosting the dollar.
Also later in the day, fourth-quarter earnings reports by
financial giants Goldman Sachs Group Inc. and Citigroup Inc. are
likely to sway investors. Profits will be key to determine whether
the U.S. stock market is overvalued after the recent rally,
analysts said.
"Markets have traveled on hope, now they are going to have to
deal with the facts," said Neil Dwane, global strategist at Allianz
Global Investors.
Write to Jon Sindreu at jon.sindreu@wsj.com
(END) Dow Jones Newswires
January 18, 2017 06:09 ET (11:09 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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