Stocks recede from two-month highs; Aussie dollar dives

NEW YORK (Reuters) – The Australian dollar tumbled on Wednesday after its central bank signaled a possible interest-rate cut in the latest indication a global economic slowdown is tilting policymakers toward looser monetary policy, while a gauge of world equity markets edged back from two-month highs.

A man smokes next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS/Daniel Munoz

Wall Street’s benchmark S&P 500 slipped on concerns over growth, disappointing earnings reports and another possible U.S. government shutdown in the wake of President Donald Trump’s State of the Union address on Tuesday. European shares gained slightly.

Australia’s central bank was the latest to signal policy easing in the face of economic headwinds. Last week, the U.S. Federal Reserve said it would be patient with regard to further rate hikes, while the European Central Bank also sounded less certain that it will start tightening policy later this year.

The about-face pushed the Australian dollar down 1.65 percent against the U.S. dollar, putting it on track for its biggest daily drop since November 2016. In turn, the U.S. dollar moved higher against a basket of major currencies.

“We are starting to see central banks follow (Fed Chair Jerome) Powell’s lead,” said Chris Gaffney, president of world markets at TIAA Bank in St. Louis. “That’s what’s actually contributed to this dollar rally that we have seen recently.”

The dollar index, tracking the unit against six major currencies, rose 0.31 percent, with the euro down 0.4 percent to $1.1366. The index was on pace for a fifth day of gains.

In his address, Trump vowed to build a wall at the U.S.-Mexico border, a divide with Democrats that had led to the previous 35-day partial government shutdown.

“While he wasn’t confrontational, he still didn’t reach out an olive branch across the aisle in any manner. Both sides still seem dug in, so there’s a real fear that we are going to head toward another government shutdown,” said Gaffney.

The Dow Jones Industrial Average rose 11.84 points, or 0.05 percent, to 25,423.36, the S&P 500 lost 3.06 points, or 0.11 percent, to 2,734.64 and the Nasdaq Composite dropped 15.83 points, or 0.21 percent, to 7,386.25.

Shares of videogame makers Electronic Arts and Take-Two Interactive Software tumbled after their respective forecasts sparked concerns.

European stocks were buoyed by gains in Italian banks and tech stocks.

The pan-European STOXX 600 index rose 0.15 percent and MSCI’s gauge of stocks across the globe shed 0.19 percent.

Benchmark U.S. 10-year notes last rose 1/32 in price to yield 2.7018 percent, from 2.704 percent late on Tuesday.

Signs of strong U.S. demand for distillate products and tightening global crude supply boosted oil prices but gains were capped by a rising U.S. dollar and ongoing concerns about a global economic slowdown.

U.S. crude rose 0.56 percent to $53.96 per barrel and Brent was last at $62.55, up 0.92 percent on the day.

Editing by Bernadette Baum and Nick Zieminski

Tagged ,