Friday 19:20 GMT
Global stocks ended a record-breaking week on a softer note amid growing doubts about US economic policies and persistent concerns about European politics.
The more risk-averse tone helped the yen reach its strongest level against the dollar for two weeks, while gold hit a three-month high and US and German government bond prices rose sharply.
The FTSE All-World share index, which hit a record intraday high of 295.96 on Thursday, was down 0.5 per cent on Friday at 293.93.
Since the US election in November the global equity gauge has risen more than 8 per cent as growth bulls have taken heart from promises made by Donald Trump, US president, of fiscal stimulus, infrastructure spending and deregulation.
But a lack of clarity regarding the new administration’s economic policies appears to have put the “Trump reflation trade” on hold, for the time being at least — particularly after Steven Mnuchin, Treasury secretary, left markets wanting more after he spoke on Thursday.
“In his first interactions with the press, Mr Mnuchin opted not to divulge any of the tax reform details that markets are clearly craving, and instead took a more prudent approach by stating that the positive growth impact from a potential fiscal policy package won’t be felt until 2018,” said Viraj Patel, strategist at ING.
“Add to this speculation that large-scale infrastructure spending could also be delayed until closer to the 2018 midterms — for political ammunition — and it is easy to understand why investors are losing faith in the Trump reflation story.”
More positively for risk assets, Mr Mnuchin rowed back on the president’s promise to fast-track the branding of China as a currency manipulator.
“The US possibly naming China a currency manipulator would be a negative for global risk appetite,” said Hans Redeker, strategist at Morgan Stanley.
“It would increase asset and foreign exchange volatility and weaken currencies of countries delivering into China’s export industry.”
By mid-afternoon in New York, the S&P 500 US equity benchmark was down 0.2 per cent at 2,358 — leaving it 0.4 per cent down from Thursday’s record intraday high but still up 0.3 per cent for the week.
The Dow Jones Industrial Average was on track to snap a 10-session run of record closing highs as it shed 0.3 per cent.
In Europe the mood was even more downbeat. The pan-regional Stoxx 600 fell 0.8 per cent and was slightly weaker over the five-day period.
Japan’s Topix fell 0.4 per cent, while Hong Kong’s Hang Seng lost 0.6 per cent and Australia’s S&P/ASX 200 was 0.8 per cent lower, weighed down by materials stocks after a sharp fall for some base metal prices overnight. China’s Shanghai Composite was an outlier, but only just as it added 0.1 per cent.
The softer tone to stocks fuelled another bout of strength for US and German government bonds — even as worries about France’s forthcoming election faded. Growing doubts that the Federal Reserve would raise interest rates next month added to the positive mood.
The yield on the 10-year US Treasury, which moves inversely to its price, was down 6bp at 2.33 per cent — its lowest point since mid-January and a third successive decline.
In the German bond market this week the focus was on the front-end of the curve, as the two-year yield hit a record low of minus 0.96 per cent.
French bond prices rallied for third day, as concerns appeared to ease about a possible presidential election victory for Marine Le Pen, the far-right, anti-EU candidate.
This week the premium demanded by investors to hold French, rather than German debt, hit a post-eurozone crisis high.
“French sovereign spreads widening to levels last seen in 2012 at the same time as a flight-to-quality bid pushes two-year German Schatz yields to record, negative, new lows reflects renewed fears of a euro break-up,” said Divyang Shah, global strategist at IFR Markets.
A choppy week in the oil markets left Brent crude down 0.9 per cent at $56.08 a barrel — up 0.5 per cent over five days.
The dip for Treasury yields helped gold reassert its upward momentum, with the metal up $8 to $1,257 an ounce — the highest since just after the US election — and $21 higher for the week.
The euro was 0.1 per cent lower against the dollar at $1.0564, and down 0.4 per cent for the week. The US currency was 0.4 per cent softer against the yen at ¥112.08 — and well off a high of ¥113.77 this week — reflecting the view that the US interest rates were unlikely to be raised in March.
The minutes of the Fed’s latest Open Market Committee meeting highlighted the huge uncertainty among policymakers about the potential impact of any fiscal stimulus. Analysts said it was likely to stay cautious about raising rates.
The South African rand weakened 0.6 per cent to 12.9353 per dollar after president Jacob Zuma said the government will change the law to allow expropriation of land without compensation.
Additional reporting by Peter Wells in Hong Kong
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