The screens of stock traders were awash in red yesterday ahead of a key speech by US President Donald Trump and a deluge of company and economic announcements.
The dollar fell against other major currencies despite rising yields on US bonds, which would normally pull in investors seeking higher returns and support the greenback.
“The dollar’s depressed price action suggests that uncertainty continues to mount ahead of President Donald Trump’s State of Union address late yesterday,” said Lukman Otunuga, a research analyst at FXTM online currency trading firm.
“While the speech itself may not be a market shaker, there could be fireworks and dollar volatility if Donald Trump goes off-script,” he added.
Wall Street opened sharply lower yesterday, a day after posting its largest drop in more than four months, with the Dow slumping by 1.1% in late morning New York trading.
The reversal for equities comes just as Trump, who has repeatedly taken credit for the record run on the stock market, will make his most important speech of the year about the state of the nation.
In addition to Trump’s speech, investors may also be showing caution ahead of a spate of corporate earnings reports this week, including those from Apple, Facebook and other tech giants. The tech-heavy Nasdaq opened 1% lower yesterday.
This week’s calendar also includes the US jobs report for January and a two-day Federal Reserve meeting that will update the market on the outlook for more interest rate increases.
European indices fell across the board.
The Paris CAC 40 came close to crossing over into positive territory at one point as official data showed the French economy notching up its fastest growth in six years, expanding by 1.9% in 2017. The 2.5% growth for the eurozone was the best in a decade.
But the CAC ended the day down 0.9% at 5,473.78. Frankfurt gave up 1% at 13,197.71 and London shed 1.1% at 7,587.98 points at the close yesterday.
“The large sell-off in the US last night got traders nervous, and now the fear has spread,” said David Madden at CMC markets UK.
Stock prices were also suffering from the higher US bond yields.
While equities have been striking records, the question some investors may soon pose is how far the rally can go and whether bonds may once again offer better returns.
Yields on bonds are rising as central banks move to reduce massive injections of cash stimulus that has helped to prop up the global economy since the financial crisis of a decade ago.
“Certainly the dynamics have shifted in bond markets,” noted Wilson.
“Central banks are either out of the market or buying fewer bonds. The Fed is now in the business of selling not buying.”
A view of the Frankfurt Stock Exchange. The DAX 30 gave up 1% at 13,197.71 yesterday.
