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Cape Town - Investors adopted a cautious tone as European stocks pared a third straight week of gains before a major speech from US President Donald Trump. Gold headed for a three-month high as the dollar weakened.
Bullion rose for a fourth week after US Treasury Secretary Steven Mnuchin said on Thursday he expects low borrowing costs to persist, sparking a drop in the dollar.
A gauge of the US currency headed for a weekly decline. European shares slid as both BASF and Vivendi gave downbeat outlooks for 2017. Oil pared a weekly advance.
A fifth weekly gain for global equities that’s helped push their value above $70trn is losing momentum as money managers grapple with political uncertainty and the Federal Reserve’s schedule for lifting borrowing costs. Traders are taking a wary stance heading into the weekend, before Trump’s address to House and Senate lawmakers Tuesday in the US.
“Next week it will be three weeks since President Trump promised something ‘phenomenal’ with respect to tax reform and investors are starting to become a little restless,” Michael Hewson, the London-based chief market analyst at CMC Markets, said in a report.
If Trump’s speech next week fails to provide details, “then the rally that we’ve seen in the past three months could become susceptible to some profit-taking,” he said.
What traders are watching for:
Investors will be looking for details on tax cuts or other economic plans when Trump addresses Congress next week. Billionaire Warren Buffett releases his annual letter to shareholders with Berkshire Hathaway’s earnings over the weekend.
Legislators in the UK will consider changes to the Brexit bill next Monday and on Wednesday that may address the rights of EU citizens in Britain and give parliament a binding vote on the final deal.
Here are the main moves in markets:
Stocks
The Stoxx Europe 600 Index fell 0.3% as of 12:06, dropping for a third day and paring a weekly advance. Japan’s Topix index lost 0.4%. The gauge rose 0.4% for the week. Futures on the S&P 500 fell 0.1%.
The index rose less than 0.1% on Thursday, while the Dow posted a 10th day of gains, its longest streak of record closes since 1987. Baidu Inc. surged in after-hours trading in New York as profit topped estimates.
Currencies
The Bloomberg Dollar Spot Index dropped 0.1% after falling 0.3% in the previous session. The yen fell 0.1% to ¥112.50/$, after rising 0.6% on Thursday.
Commodities
West Texas Intermediate traded 0.6% lower at $54.12 a barrel. Brent fell 0.7% to $56.22.
Bonds
German bonds were supported as credit spreads widened. German two-year yields dropped three basis points, with the ECB’s bond-buying program seen supporting the sector.
The swap spread - the difference between German bonds and the equivalent interest rate swap - rose to new records across the two- to five-year sector. A note from Citigroup suggested that German two-year yields could fall to minus 1% or more, as the ECB will be forced to buy more short-dated bonds.
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