The dollar eased and global equity markets fell yesterday as investors stepped back ahead of second-quarter earnings reports and after successive record highs last week for several major stock indices.
Media reports of new US fines for banks and dimming prospects that the European Central Bank will launch an asset-purchase programme weighed on sentiment in Europe, as did German imports and exports that dropped more than expected in May.
The earnings season is just getting under way, and estimates have been coming down as they typically do prior to the release of results.
MSCI’s ACWI fell 0.71 per cent to 428.78, while the pan-European FTSEurofirst 300 index closed down 1.3 per cent at 1,363.46 points.
The Dow Jones industrial average fell 122.48 points, or 0.72 per cent, to 16,901.73.
The S&P 500 lost 14.71 points, or 0.74 per cent, to 1,962.94 and the Nasdaq Composite dropped 64.56 points, or 1.45 per cent, to 4,386.97.
European equity indexes fell for a third consecutive day on reports Germany’s largest lenders were negotiating a settlement with US authorities over their dealings with countries blacklisted by Washington. The talks follow a huge fine for French lender BNP Paribas.
The dollar fell against the Japanese yen as long-dated Treasuries yields dropped for a second day, with investors wary of riskier assets as the US earnings season began.
Safety buying of long-dated Treasuries is seen limiting dollar strength, at least in the near term. Three straight days of record closing highs for the S&P 500, the Dow and MSCI’s all-country world index tamped down investor enthusiasm.
“We’ve seen a bit of risk aversion in the market and the tendency for yields to fall in the US and the dollar to fall in sync with it,” said Sebastien Galy, senior foreign exchange analyst at Societe Generale in New York. “It’s driven by equities.”
The ECB has made unprecedented policy moves in recent months to stimulate bank lending and revive the eurozone economy. But ECB Executive Board member Sabine Lautenschlaeger expressed opposition to a programme of asset purchases, which she said should be a last resort.
The dollar fell 0.27 per cent against the yen to 101.54 yen. The euro rose 0.01 per cent to $1.3606.
Oil prices extended their recent decline as events in Iraq and Ukraine have so far not led to serious disruption in flows. Brent fell $1.25 to $108.99 a barrel and US oil lost 35 cents to $103.18 a barrel.