Global markets start week on hesitant note

Monday 18.00 BST

What you need to know

  • S&P 500 barely changed, Xetra Dax slips 0.8 per cent
  • Dollar weak ahead of Jackson Hole symposium
  • Zinc leads base metals higher, gold firm
  • Oil prices reverse early gains


Global markets started the week on a broadly cautious note as participants continued to focus on political turmoil in Washington and simmering tensions between the US and North Korea, while looking ahead to this week’s Jackson Hole gathering of central bankers.

Hot topic

US stocks were little changed while the dollar remained under pressure, despite hopes that the decision late last week by Donald Trump, president, to fire his chief strategist, Steve Bannon, would clear the way for a more streamlined policy process.

“The departure of Mr Bannon from the White House has led to some commentators speculating that President Trump may be trying to reconnect with the [Republican party’s] tax reform agenda, which would be a risk-positive,” said Hans Redeker, strategist at Morgan Stanley.

“Tax reform requires efficient communication, and in this respect it will be important to see what will happen to the debt ceiling.

“Any failure to raise the debt ceiling will push prospects for tax reform back, which may be unwanted. Accordingly, Mr Bannon’s departure may implicitly improve the outlook for seeing the debt ceiling increased without too many hiccups.”

Lee Hardman, currency analyst at MUFG, said Mr Bannon had been considered “the standard bearer for cultural and economic populists” in the administration. His departure would “materially weaken” the nationalist group in the White House. The “tail risk of a lurch into full-blown trade protectionism” had therefore been reduced.

“It is hoped as well that the empowering of chief of staff John Kelly will continue to impose more focus on achieving the administration’s policy goals by acting as potential dampener on infighting at the White House,” he said.


Despite such hopes, the S&P 500 equity index was flat at 2,426 at midday in New York, while the Dow Jones Industrial Average was a fraction lower and the Nasdaq Composite was down 0.4 per cent.

European stocks were also on the back foot, with the pan-regional Stoxx 600 falling 0.4 per cent and the Xetra Dax in Frankfurt shedding 0.8 per cent. John Higgins at Capital Economics noted that the Dax has fallen about 6 per cent in two months.

“While this has coincided with a further rally in the euro, the currency’s rise has been mainly due to expectations of European Central Bank ‘tapering’ rather than to optimism about the eurozone’s economy,” he said.

“Indeed concerns have been growing that excessive strength in the euro will derail the recovery in Germany and her neighbours.”


The ECB highlighted worries about the strength of the single currency in the minutes of its last policy meeting.

Market participants will be keen to see whether Mario Draghi, ECB president, touches on the subject when he speaks at Jackson Hole, Wyoming, this week.

“The foreign-exchange market will mainly want him to say whether the euro strength seen over the past months is beginning to get too much for him,” said Ulrich Leuchtmann, currency analyst at Commerzbank.

“If Mr Draghi does not say anything on the matter this could be seen as an attempt to backpedal, strengthening the euro further.”

The euro was up 0.4 per cent against the dollar at $1.1812, and 0.1 per cent firmer versus the yen at ¥128.58.

The US currency was 0.3 per cent softer against the yen at ¥108.85 while sterling was up 0.3 per cent at $1.2903. Those moves left the dollar index down 0.4 per cent at 93.08.

Fixed income

It was a fairly quiet day for government bond markets ahead of the global central bank symposium.

The yield on the 10-year US Treasury was flat at 2.19 per cent, while that on the 10-year German Bund slipped 1 basis point to 0.40 per cent.

Yields on Greek government debt dipped after credit rating agency Fitch upgraded its assessment of the country’s prospects.


Oil prices came under pressure following the big increases seen late on Friday, with Brent, the international crude benchmark, down 2 per cent at $51.66 a barrel and West Texas Intermediate, the main US contract, 1.9 per cent weaker at $47.57.

However, industrial metals were higher almost across the board. Zinc rose 0.6 per cent in London to $3,143 a tonne — having hit $3,180.5, its highest price since October 2007 — amid expectations for a large market deficit this year.

Copper was up 1 per cent at $6,549 a tonne, the highest for nearly three years, while aluminium was 0.9 per cent stronger at $2,080.

Gold was up $5 at $1,289 an ounce, putting it on course for its highest finish since early June.

Additional reporting by Kate Allen in London and Hudson Lockett in Hong Kong

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