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Caution prevailed on Friday, with stocks declining and the dollar climbing, as investors girded themselves for potentially seismic events this month including Britain’s referendum on European Union membership and the Federal Reserve meeting. Oil retreated.
The MSCI All-Country World Index headed for its biggest two-day decline in three weeks, led by commodity producers and financial companies. A gauge of Chinese stocks in Hong Kong slumped, poised to end its longest winning streak in nine years. The Bloomberg Commodity Index slid as U.S. crude oil approached $50 a barrel and gold fell. A gauge of the greenback’s strength advanced for a second day even as the yen gained, while expectations for price swings in the pound climbed for a sixth week to a seven-year high. Demand for havens boosted debt, with 10-year Japanese yields falling to a record low.
Recent optimism that a combination of loose monetary policy and moderate global growth would bolster risk assets appears to be peaking before meetings by the Fed and the Bank of Japan, Britain’s vote and U.S. political conventions, all of which have the potential to roil markets. Billionaire investor George Soros is said to have recently overseen a series of large, bearish investments, which has also tempered the market mood as equities trade near multi-month highs.
“Ahead of the Fed and BOJ next week, and the vote on Brexit the week after, no one wants to take risk today,” said Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo.
Stocks
The Stoxx Europe 600 Index was down 0.7 percent as of 8:16 a.m. London time in a third day of losses. The MSCI Asia Pacific Index lost 0.9 percent. MSCI’s global gauge trimmed its weekly advance to 0.4 percent.
Benchmark stock indexes fell across much of Asia. Japan’s Topix index fell 0.5 percent.
Mining companies and energy producers led Australia’s S&P/ASX 200 Index down 1 percent. The Hang Seng China Enterprises Index fell 2 percent as it declined for the first time in 10 days. Markets in Mainland China and Taiwan were closed for a holiday.
Futures on the S&P 500 Index slipped 0.3 percent to 2,098.50, following a 0.2 percent retreat in the U.S. benchmark. The index — which remains about 1 percent away from its record high — clawed back declines of as much as 0.5 percent Thursday as gains in utilities and telephone companies countered losses among banks and mining shares.
“With the market being priced where it’s at, there’s not a lot of room for air,” said Jim Davis, regional investment manager at the Private Client Reserve of US Bank, which oversees $128 billion. “I would not be surprised to see it back off a little more in the next week. The market has to navigate some choppy waters between now and mid-July.”
Currencies
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose a second day, adding 0.1 percent after rallying 0.4 percent on Thursday. The gauge is headed for a second straight weekly decline, down 0.3 percent. The Fed meets June 15, while the BOJ convenes the next day.
Sterling headed for its second weekly decline versus the dollar before the U.K. votes on June 23 on whether to remain in the EU. Implied volatility for one-month options on the pound versus the dollar rose to 23.5 percent, the highest since January 2009, and more than double the level at the end of April. Expectations for price swings have climbed every week since the period ended April 29, the longest streak of increases since late February.
The yen climbed 0.3 percent to 106.82 per dollar. Australia’s dollar joined the Korean won and Malaysian ringgit in declines, falling 0.2 percent to trim its advance in the week to 0.6 percent. The won slid 0.8 percent, snapping a six-day climb after the Bank of Korea unexpectedly cut interest rates on Thursday.
Japan’s benchmark 10-year bond yield fell to a record low of minus 0.155 percent.
Commodities
New York crude oil dropped 1.1 percent to $50.01 a barrel in a second day of declines, paring this week’s advance to 2.9 percent. The Bloomberg Commodity Index slid 0.4 percent.
Gold for immediate delivery fell 0.1 percent to $1,268.08 an ounce. Platinum and palladium declined more than 0.5 percent. Copper slid 0.3 percent, trimming its weekly loss to 3.9 percent.
Source: Bloomberg
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