Investors flee stocks for bonds, gold as US tax cut hopes fade

LONDON: World stocks were set for a second day of losses on Friday after an exodus of US executives from presidential business councils dealt a fresh blow to hopes of tax reform and deadly attacks in Barcelona hit shares in European tourism firms.
Investors fled into German and US Treasury bonds and bought gold for the third day in a row, as US policy uncertainty and fears of more attacks boosted the appeal of such top-notch assets.
US equity markets appeared poised for a broadly weaker open, futures for the S&P 500 and Dow Jones indexes showed, though futures on the Nasdaq tech benchmark were up 0.13 per cent.
Markets have been dismayed by US President Donald Trump’s latest controversial comments on violence that flared in Charlottesville, Virginia, after a white nationalist protest.
Several business leaders have since resigned from his advisory councils and a White House official said plans for a council on infrastructure had been dropped.
These developments have dashed hopes for tax cuts and infrastructure spending, Trump campaign promises that fuelled much of this year’s gains in world stocks, emerging markets and commodities.
“Confidence that Trump’s economic agenda will be implemented has waned in recent months. We did not emphasise Trump’s declining support as a market factor (so far) because his base held. There are signs of it cracking,” Mark Chandler at Brown Brothers Harriman told clients.
“Heightened policy uncertainty may not be conducive to the investment climate and the same moment the Fed raises the decibel of its warning about asset prices,” Chandler said, referring to recent Federal Reserve comments on US share valuations.
Equities worldwide are still on track to end the week in the black, as fears have ebbed of the standoff between the United States and North Korea leading to war.
But with New York’s equity indexes all tumbling on Thursday to multi-week lows, MSCI’s index of Asian shares outside Japan fell 0.6 per cent on Friday.
The pan-European STOXX 600 index fell 0.9 per cent. Losses were led by travel and leisure as investors reacted to the Barcelona attack by selling shares in airlines such as Ryanair, EasyJet and Spanish airport firm AENA. Madrid shares fell more than 1 per cent.
All this took MSCI’s world index, which tracks shares in 46 countries, down 0.3 per cent to one-week lows . The index has had a stellar run this year, having risen nine months in a row before August.
“Markets have been on the look for a trigger over the past couple of days, in our view, and may have found their catalyst,” analysts at TD Securities wrote, referring to the Barcelona attacks which have killed at least 13 people.
Equity weakness is heaping more pressure on the dollar, pushing it down 0.5 per cent against the yen, the lowest in a week and approaching one-year lows of 108.13 yen hit in April.
ING Bank predicted the dollar would remain pinned near current levels, at the expense of the yen.
“Tail risks such as geopolitics, protectionism and the unwind of easy central bank money all provide valid reasons to remain cautious in chasing risk,” ING told clients. “Dollar/yen continues to capture this nervousness.”
The euro edged up 0.2 per cent against the dollar, after tumbling on Thursday to a three-week low of $1.1662 after minutes of the European Central Bank’s July 20 policy meeting showed the bank was worried about the currency rising too much.
ING saw the ECB’s euro concerns as justified and expects the bank to proceed cautiously while unwinding stimulus, in turn limiting the upside to European bond yields.
Yields have fallen in recent days following the ECB comments and amid the dash for defensive assets, with 10-year Bunds at a one-week low of 0.39 per cent while 10-year Treasuries matched one-week lows hit on Thursday.
The turmoil also benefited gold, with spot prices for the metal rising 0.6 per cent to the highest since last November and on track for its second week of gains.
Brent crude futures rose 0.2 per cent, rising off three-week lows hit on Thursday, benefiting from dollar weakness and signs of tighter supply in the world’s biggest energy consumer, the United States.
 — Reuters