US stocks fell and Treasuries rose as global financial markets turned cautious amid rising tension in the Middle East and renewed political discord in America. The dollar stayed lower as a key gauge of inflation accelerated.
All major equity indexes were lower after President Donald Trump’s provocative comments about Russia and his warning that America’s preparing to attack Syria. Crude oil continued to climb, pushing past $66 a barrel. Gold gained.
The market had rallied this week as trade tensions appeared to ease. The flight to higher-quality assets spurred a jump in gold and sent the 10-year Treasury yield to 2.76 percent. Aluminum headed for its biggest winning streak since 1988.
“Another sharp two-day rally in the stock market…followed by another tweet from the President…followed by another reversal of the rally,” Matt Maley, an equity strategist at Miller Tabak, said. “It’s becoming a broken record. The White House can say that the blame really goes to China and Russia…and maybe they’re correct…but there is no doubt that the President’s comments/tweets have been THE catalyst to stop the sharp short-term bounces we have seen in recent weeks.”
The market’s respite from ebbing protectionist concerns proved short-lived as geopolitical risk ratcheted up, with Trump, who is preparing his response to an attack that Russia says didn’t happen, saying relations between the two countries are worse than they have ever been.
That also overshadowed the latest reading on consumer prices in the world’s largest economy. The key inflation measure accelerated to the highest in a year as a drag from mobile-phone costs faded, bearing out the Federal Reserve’s forecast for a pickup in price gains.
“We have to keep in mind that the Fed doesn’t target this gauge of inflation, lessening its importance for what interest rates might do,” James McCann, senior global economist at Aberdeen Standard Investments, said. Earlier in Asia stocks were mixed, with indexes in China and Hong Kong posting the biggest gains as People’s Bank of China Governor Yi Gang offered more details on pledges to open the world’s second-largest economy.
The S&P 500 Index was down 0.5 percent in New York, following a 2 percent rally over the prior two days. The Stoxx Europe 600 Index fell 0.5 percent. The MSCI All-Country World Index retreated 0.3 percent. The UK’s FTSE 100 Index declined 0.1 percent. Germany’s DAX Index dipped 0.9 percent. The MSCI Emerging Market Index fell 0.1 percent. The MSCI Asia Pacific Index was little changed.
The Bloomberg Dollar Spot Index dipped 0.1 percent to the lowest in more than two weeks. The euro gained 0.2 percent to $1.2375. The British pound climbed 0.1 percent to $1.419, the strongest in more than two weeks. The Japanese yen increased 0.3 percent to 106.94 per dollar. The yield on 10-year Treasuries dipped three basis points to 2.7717 percent, the lowest in more than a week. Germany’s 10-year yield decreased two basis points to 0.495 percent.