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Wall St struggles to make headway in mixed session

Tuesday 18:00 GMT

Overview

Stock markets are mildly mixed, forex moves are relatively muted, while oil prices meander and Treasury yields nudge higher in a session seemingly bereft of fresh catalysts.

Hot topic

The dollar and US short-term bond yields are holding just shy of multiyear highs as the market continues to discount an interest rate rise by the Federal Reserve next week.

Futures suggest there is an 88.6 per cent chance the central bank will increase borrowing costs on March 15 by 25 basis points to 0.75-1.0 per cent, according to the CME’s FedWatch tool.

Unless Friday’s monthly US jobs report is shockingly poor, then a move in several days by chair Janet Yellen and colleagues thus is considered a given.

Attention is now turning to when the next rate rise may come. The June Fed policy meeting is seen offering a 38.5 per cent chance of another 25bp rise — a lack of conviction among investors that has stalled the recent rises in the greenback and US sovereign debt yields.

The dollar index, which measures the buck against a basket of its peers, and which hit a 14-year high of 103.82 at the start of 2017, is up 0.1 per cent for the day at 101.72 despite news that the US trade deficit hit its widest mark in nearly five years.

The policy-sensitive US two-year bond yield, which on Friday hit an intraday seven-year high of 1.345 per cent, is 1bp firmer at 1.32 per cent.

US 10-year Treasury yields are flat at 2.50 per cent though equivalent maturity German Bunds are 2bp softer at 0.32 per cent after a report confirmed economic growth in the eurozone was 0.4 per cent in the fourth quarter of 2016.

Kathleen Brooks, research director at City Index, said that even if the market thought the Fed was increasingly likely to tighten policy in June, too, it should not derail the rally in stock markets.

“After all rates are rising from an historically low base, prospects for growth in the US are extremely high and global economic data are strong. The Citi Economic Surprise index for major economies is close to its highest level since 2010.”

Equities

And so, after a mild pullback in recent sessions, many major bourses are more stoic on Tuesday.

The S&P 500, which closed on March 1 at a record 2,396 as hopes revived that President Trump’s policies would add extra propulsion to US growth, is retreating just 0.2 per cent at 2,371 in New York trading.

US healthcare stocks are under pressure after Republicans unveiled their plans to repeal Obamacare while pharma equities recoiled from Donald Trump’s latest pledge to drive down drug prices.

In Europe, the Stoxx 600 closed 0.3 per cent down and London’s FTSE 100 0.2 per cent lower as miners recover some of the previous day’s retreat.

Japan’s Topix index was also becalmed as Nintendo was a bright spot with its shares climbing 2 per cent for a third straight day of gains following Friday’s launch of the new Switch console.

In Sydney, Australia’s S&P/ASX 200 index rose 0.3 per cent, led by gains for the healthcare sector. Hong Kong’s Hang Seng index gained 0.4 per cent, buoyed by gains for consumer staples and IT stocks, while in mainland China the Shanghai Composite index added 0.3 per cent.

Forex

Trading in forex has been muted, with Citi dealers in Asia noting that interbank turnover was about 40-50 per cent lower than in recent sessions.

The euro is down barely 0.1 per cent to 1.0570 as it reacted to news that German factory orders fell sharply in January and as traders await the European Central Bank’s monetary policy decision on Thursday.

The Japanese yen is 0.1 per cent softer against the dollar at ¥113.98.

The UK pound is down 0.3 per cent to a seven-week low of $1.2199 ahead of the government’s Budget presentation on Wednesday and as Brexit concerns linger.

Commodities

Oil prices continue to fluctuate within the narrow channel they have inhabited for much of the year as Opec production cuts are counteracted by expectations of increasing US-based output.

Brent crude, the international benchmark, was 0.1 per cent lower at $56.16 a barrel while West Texas Intermediate, the main US contract, is adding 0.1 per cent to $53.25.

Gold is down 0.6 per cent to $1,217 an ounce. The precious metal hit a near four-month high of $1,264 just six sessions ago but has drifted lower as US rate rise expectations have jumped.

Reporting by Jamie Chisholm and Stephen Smith in London and Hudson Lockett in Hong Kong

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