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(Bloomberg) -- Treasuries fell for a third day and U.S. stocks limped to the end of a week that saw a bout of volatility return to global financial markets.
The S&P 500 Index slumped, posting its first down week since early September. The move was led in part by health-care shares, which dropped as the industry grapples with how to handle Amazon as a potential competitor. Energy stocks also struggled as crude slipped below $57 a barrel amid rising tensions in the Persian Gulf.
“Market participants expect OPEC to extend the production cuts beyond March 2018 and stocks to decline further,” commodities analysts at Commerzbank wrote in a note to clients Friday. “That said, the reduction of stocks should be sluggish even if the agreement to cut production is extended. What’s more, the higher price level should lead to a further rise in U.S. shale oil production. Oil is already much too expensive even if the latest developments in Saudi Arabia justify a certain risk premium on the oil price.”
The yield on 10-year Treasuries punched through 2.4 percent, joining a spike in European sovereign rates with inflation worries ratcheting up. The dollar was little changed as President Donald Trump’s Asia trip wound down. High-yield debt steadied, the largest junk bond exchange-traded fund rose after three days of declines.
Carmakers led the Stoxx Europe 600 Index to its biggest two-day drop since August, with most industry sectors declining. Stocks in Asia fell after a rally earlier in the week that saw them touch record highs. Yields on core European bond yields rose.
Global equities hit historic highs during the week as investors were encouraged by solid earnings and synchronized economic growth. But they sold off sharply on Thursday as the U.S. Senate revealed that its tax plan would delay cuts to the corporate rate until 2019. The move fed growing pessimism about the prospects for meaningful U.S. fiscal reform, which had buoyed share prices in the U.S. On Friday, economists at the University of Michigan reported that consumer sentiment in November fell by the most in a year.
“We think Americans are confused by the current tax cut proposals, which will radically change how workers will pay Uncle Sam,” Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in an email. “Washington uncertainty is back. Big time. Bet on it.”
In addition, traders have begun preparing for a series of potential interest rate increases by the Federal Reserve over the next 12 months.
“You have a Fed that with a 4.1 percent unemployment rate appears to be on cruise control for three or four hikes over the next year,” said Dennis DeBusschere, head of portfolio strategy at Evercore ISI. “In the context of there being very little inflation, if they do that it implies tighter financial conditions, which will help flatten yield curves and increase risk premiums a bit. That has a lot to do with what’s going on right now.”
Terminal users can read more in our Markets Live blog.
Here are key events investors were watching:
- Economists at the University of Michigan released preliminary consumer sentiment figures for November.
- European Central Bank Executive Board member Yves Mersch spoke at a conference in Windsor, U.K.
These are the main moves in markets:
- The S&P 500 fell 0.1 percent to 2,582.30 and was down 0.2 percent for the week.
- The Stoxx Europe 600 Index slid 0.4 percent to the lowest in more than two weeks.
- The U.K.’s FTSE 100 Index dropped 0.7 percent.
- Germany’s DAX Index dipped 0.4 percent.
- The MSCI Emerging Market Index declined 0.6 percent, the biggest drop in more than three weeks.
- The Bloomberg Dollar Spot Index was little changed.
- The euro gained 0.2 percent to $1.1668.
- The British pound climbed 0.4 percent to $1.3198.
- The Japanese yen dropped less than 0.1 percent to 113.55 per dollar.
- South Africa’s rand sank 0.9 percent to 14.3772 per dollar, the weakest in a year.
- The yield on 10-year Treasuries rose six basis points to 2.402 percent, the largest climb in three weeks.
- Germany’s 10-year yield increased four basis points to 0.41 percent, the highest in more than two weeks.
- Britain’s 10-year yield surged eight basis points to 1.342 percent, the largest increase since September.
- West Texas Intermediate crude slipped 0.6 percent to $56.83 a barrel.
- Gold dropped 0.7 percent to $1,275.67 an ounce.
- Copper fell 0.4 percent to $3.07 a pound.
--With assistance from Eddie van der Walt
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