Equity rally falters as traders turn to havens

Paris - Investor appetite for risk abated as European shares dropped on concern the longest rally since July 2015 went too far, while havens including the yen, bonds and gold advanced.

An index of Europe’s 600 biggest shares fell for the first time in eight days. Nestle SA lost the most since November after saying it will target lower growth. The dollar depreciated against most G10 peers even as traders raised bets for higher US interest rates in light of faster-than-expected inflation. Gold climbed and Treasuries advanced after falling for five days.

“Following the sharp rally we’ve seen in cyclical shares since early November, investors are now getting reluctant to just buy whole sectors such as mining and banks, and are starting to pick the best stocks within the sectors,”  Stephane Ekolo, chief European strategist at Market Securities in London. “These stocks will prove more resilient when the selloff comes.”

Global equities jumped in value by more than $5trn since President Donald Trump’s November victory, spurred largely on bets his pledges to boost spending would activate growth and inflation.

The relative strength index of the MSCI’s broadest global equity gauge is signalling to some traders a correction is now due, while odds for a US rate hike in March are on the rise.

What’s ahead for the markets:

Next up for US economic reports will be data on housing starts, due on Thursday.US home construction starts were probably little changed in January after a larger-than-projected advance a month earlier, a Commerce Department report is forecast to show.

The Group of 20 foreign ministers began a two-day meeting as part of Germany’s rotating chairmanship. Rex Tillerson is expected to make his first European trip as secretary of state.

Here are the main moves in markets:

Stocks

Stocks Europe 600 Index fell 0.3% as of 14:17, the first decline since February 6, with only technology, health care, leisure and telecommunications shares eking out gains.

The MSCI All Country World Index climbed 0.2%. Nestle, the world’s largest foodmaker, fell 2.2%. Futures on the S&P 500 decreased 0.2% after the benchmark index rose 0.5% on Wednesday. The MSCI Asia Pacific Index added 0.5%, though more stocks fell than rose. Chinese shares traded in Hong Kong extended a rally and the Hang Seng climbed to the highest since August 2015.

Currencies

The yen appreciated 0.5% to ¥113.61/$, the best performance in a basket of 17 peers. Bloomberg Dollar Spot Index lost 0.2%, matching the decline on Wednesday. The rand weakened 0.5%.

Bonds

The yield on 10-year Treasuries dropped two basis points to 2.47% after increasing for a fifth day on Wednesday. Demand climbed at an auction of French debt, although bonds declined after the sale as investors focused on weak pricing.

Commodities

Oil traded near $53 a barrel after a government report on Wednesday showed US crude inventories rose to the highest levels in weekly data going back to 1982. Gold climbed for a third day, gaining 0.3% to $1 237.90 an ounce.

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