By David Randall
NEW YORK, March 19, 2018 - U.S. stocks joined a slide on global equity markets on Monday as traders turned cautious ahead of the Federal Reserve's policy meeting this week and amid continuing concerns about the threat of a global trade war.
MSCI's main 47-country world stock index fell for a fifth straight day, after European stocks dipped and benchmark U.S. indexes declined. Global equities are on their worst run since November.
The defensiveness came as fears of a global trade war triggered by U.S. President Donald Trump's imposition of tariffs on steel and aluminum imports cast a cloud over a two-day G20 meeting in Buenos Aires this week.
The Dow Jones Industrial Average .DJI fell 176.45 points, or 0.71 percent, to 24,770.06, the S&P 500 .SPX index lost 19.46 points, or 0.71 percent, to 2,732.55 and the tech-heavy Nasdaq Composite .IXIC index dropped 81.58 points, or 1.09 percent, to 7,400.41.
Shares of Facebook Inc FB.O shed 5.5 percent after reports that a political consultancy that worked on Trump's 2016 campaign gained inappropriate access to data on 50 million of the social network's users. FTSE .FTSE was down double other European indexes as a savage profit warning wiped more than half the value off one of its big tech firms, even as a two-year Brexit transition deal gave the pound its best day in almost two months against the euro EURGBP= .
A Reuters report that the European Central Bank is starting to think a bit more about the future pace of euro zone interest rate rises helped the euro recover from a difficult morning against the dollar.
It had struggled as the gap between 10-year German and U.S. government yields, referred to as the 'transatlantic spread,' ratcheted to its widest since December 2016.
Many analysts had expected that spread to narrow as the ECB nears the end of its stimulus program, but that hasn't proved the case. The shorter-dated two-year borrowing cost gap is near its widest level in more than 20 years. DE2YT=RR US2YT=RR
"There has been the narrative of supposed policy convergence between the ECB and the Fed, but that is just not the reality," said John Hardy, head of FX strategy at Saxo Bank. With as many as four hikes seen this year, expectations were "chomping at the max" he added.
FED AHEAD
Wall Street is looking toward the Fed's two-day policy meeting, which concludes on Wednesday, with 104 analysts polled by Reuters expecting that the central bank will raise rates by 25 basis points to a range of 1.50 percent to 1.75 percent.
They were less certain on whether the "dot plot" forecasts of the members of the Fed's rate-setting committee members would remain at three hikes for this year or shift higher.
Fed Chairman Jerome Powell will hold a press conference after the meeting, his first as the central bank's new chief.
"Expected is a confident Fed Chair, both with respect to the economy's strength and the Fed's approach to policy," analysts at Westpac said in a note. "Gradual and timely are the operative words for policy."
Analysts at JPMorgan (NYSE:JPM), however, see a risk the Fed might not only add one more rate rise for this year but for 2019 as well.
"The worst case is the '18 and '19 dots both move up - the Fed is currently guiding to five hikes in '18 and '19 combined, but under this scenario that would shift to seven hikes," they warned in a note to clients.
"Stocks would probably tolerate one net dot increase over '18 and '19, but a bump in both years could create problems."
Any nod to four hikes would normally be considered as bullish for the U.S. dollar, yet the currency has shown scant overall correlation to interest rates in recent months.
Dealers cite concerns about the U.S. budget and current account deficits, chaos in the White House, better growth in , particularly Europe, and the risk of a U.S.-led trade war, as among the reasons.
As U.S. trading began, the dollar had recovered to 106.23 yen having been as low as 105.69 overnight, though its wilt against the euro left it around 0.3 percent weaker against a basket of currencies at just below 90.
The prospect of higher U.S. interest rates was been a burden for non-yielding gold, which slipped 0.8 percent last week. On the day, the metal XAU= was down at $1,311.20 per ounce.
Oil prices eased after ending last week with a solid bounce. U.S. crude CLcv1 fell 0.24 percent to $62.19 per barrel and Brent LCOcv1 was last at $66.18, down 0.05 percent on the day.