Stocks decline as trade hopes fade; curve flattens

Bloomberg

The rally in risk assets sparked by the trade truce faded as investors grew skeptical that the US and China made any meaningful breakthrough. The Treasury yield curve continued to flatten and the dollar retreated.
The S&P 500, Dow Jones and Nasdaq indexes all gave up a chunk of Monday’s gains at the New York open, while the Stoxx Europe 600 Index slipped led by automakers. Stocks tumbled in Japan and dropped in Australia and South Korea after media appearances from Trump administration officials shed little light on the specifics of any Sino-American trade agreement. Shares in Shanghai and Hong Kong fared better, fluctuating before ending higher as the yuan climbed.
The greenback weakened a second day as the euro and pound rallied after an adviser to the EU’s top court said the UK should be allowed to reverse its so-called Article 50 notice, which triggered the Brexit process. European government bonds were mixed.
The optimism that drove gains for riskier assets appears to be quickly dissipating as investors scramble to figure out exactly what, if anything, was agreed between the US and China on trade at the weekend. Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between Trump and Chinese President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the US, nor did its statement mention the 90-day timeline for talks the Americans have specified.
In the Treasury market, all eyes remain on the yield curve after three-year yields climbed above those of their five-year peers on Monday, potentially foreshadowing the end of the Federal Reserve’s tightening campaign.
Elsewhere oil continued to find support, advancing for a second day in the wake of moves by producers to address a supply glut that contributed to a tumble in West Texas Intermediate prices last month.
Fed Chairman Jerome Powell’s testimony to Congress scheduled for Wednesday has been cancelled. China November trade data are due on Saturday.
The S&P 500 fell 0.2 percent in New York, while the Dow Jones Industrial Average dropped 0.4 percent and the Nasdaq Composite Index eased 0.4 percent. The Stoxx Europe 600 eased 0.5 percent. The UK’s FTSE 100 slumped 0.4 percent. Germany’s DAX Index fell 0.6 percent. The MSCI Emerging Market Index was little changed. The MSCI Asia Pacific Index fell 0.7 percent.
The Bloomberg Dollar Spot Index fell 0.3 percent. The euro fell 0.4 percent to $1.1397. The British pound rose 0.4 percent to $1.2771. The Japanese yen gained 0.7 percent to 112.82 per dollar.
The yield on benchmark 10-year Treasuries fell two basis point to 2.96 percent. The three-year note yield was little changed at 2.83 percent as the yield on the five-year note fell less than one basis points to 2.82 percent.