Stocks Steady as Investors Remain Cautious Ahead of Trump Inauguration -- 2nd Update
January 18 2017 - 6:52AM
Dow Jones News
By Jon Sindreu
Global markets were broadly flat Wednesday, a further sign of
the caution in financial markets ahead of earnings reports by large
U.S. banks and President-elect Donald Trump's inauguration later
this week.
U.S. futures pointed to the S&P 500 index remaining
unchanged, ahead of a session in which financial giants Goldman
Sachs Group Inc. and Citigroup Inc. will report on their
fourth-quarter earnings.
Goldman Sachs futures were up 0.1%, while Citigroup's fell
0.34%. Goldman shares have edged close to the all-time high they
reached in October 2007 and investors widely forecast profits to
increase from a year ago, but a lower-than-expected figure could
dent market optimism.
Corporate profits will be key to determine whether the U.S.
stock market is overvalued after the recent rally, analysts
say.
The Stoxx Europe 600 remained mostly unchanged in early European
trade and later edged down 0.2%. The biggest loser was the media
sector, which was sandbagged by Pearson PLC's 26% drop, after the
London-based publisher warned of lower future dividends on the back
of lower profit expectations.
Despite Pearson's drag, the FTSE 100 gained 0.1%. Asian shares
were mixed, but the main developed index, the Japanese Nikkei,
closed 0.4% higher.
Financial markets have struck a prudent tone ahead of Mr. Trump
taking office Friday, with investors appearing to have some second
thoughts about the risk-driven trades that have dominated since the
U.S. election on Nov. 8. While Mr. Trump's rhetoric against free
trade has long scared many analysts, markets initially focused on
his plans to slash taxes and regulations and boost infrastructure
spending.
Investors are now waiting for further clarity on such policies,
as well as corporate earnings, to decide whether growth and
inflation will come through, or whether markets got ahead of
themselves after the election.
"A lot of the indicators we follow are now pointing at the
market being overstretched," said Andrew Pease, global head of
strategy at London-based Russell Investments. "The U.S. economy's
fine, but markets have fully priced that in already."
In currencies, the pound fell 0.8% against the U.S. dollar to
$1.2299 after its 3% surge Tuesday, the biggest daily rise in eight
years. Sterling was bolstered by U.K. Prime Minister Theresa May
pledging to subject the final Brexit deal to a parliamentary
vote.
Nevertheless, many analysts said that Mrs. May's announcement
that Britain is set to leave the European single market will end up
weighing on sterling at the first sign of weak economic data.
"Enjoy the party but make sure you dance close to the door,"
said Antje Praefcke, an analyst at German lender Commerzbank
AG.
The WSJ Dollar Index, which tracks the currency against a basket
of 16 others, rose 0.4%. On Tuesday, it hit a one-month low after
Mr. Trump described the currency as "too strong" in an interview
with The Wall Street Journal.
Comments by Federal Reserve Bank of San Francisco President John
Williams, who argued that gradual interest-rate increases would
leave the economy unharmed, helped the dollar to recover.
Bond yields in the U.S. and Europe rose to reflect investors'
belief that monetary policy is unlikely to become much looser.
After falling to 2.327% on Tuesday, the lowest closing since late
November, yields on 10-year Treasurys recovered to 2.360%.
Haven assets, which had been propped up as investors became
jittery ahead of Mr. Trump's inauguration, also changed direction.
Gold was broadly flat Wednesday and the Japanese yen retreated
against all major currencies.
Traders will closely monitor Wednesday evening's speech by Fed
Chairwoman Janet Yellen to gauge whether interest rates are likely
to rise at a faster or slower pace than they are currently
expecting. Further signs of tighter-than-expected policy in the
U.S. could depress Treasurys again, boosting the dollar.
"Markets have traveled on hope, now they are going to have to
deal with the facts," said Neil Dwane, global strategist at Allianz
Global Investors.
Write to Jon Sindreu at jon.sindreu@wsj.com
(END) Dow Jones Newswires
January 18, 2017 07:37 ET (12:37 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
FTSE 100
Index Chart
From Apr 2024 to May 2024
FTSE 100
Index Chart
From May 2023 to May 2024