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Market Buzz - 31st October 2017

31 Oct 2017


Stocks retreated from their record highs on Monday, ahead of a frenetic week for markets. Investors are waiting to learn who the next head of the Federal Reserve will be, what several of the world's biggest central banks will decide on interest rates, and whether Apple and other big U.S. companies can keep piling their profits higher.

In the meantime, reports continued to show that the economy is strengthening and negotiations continued in Washington to cut income-tax rates. Amid the many cross currents, the S&P fell 8.24 points, or 0.3%, to 2,572.83 from its record set on Friday. Losses for health care stocks, telecoms and other areas of the market overshadowed gains for technology companies and energy producers. The Dow fell 85.45, or 0.4%, to 23,348.74, and the Nasdaq composite dropped 2.30, or less than 0.1 %, to 6,698.96. Smaller stocks fell more than the rest of the market, and the small-cap Russell 2000 index lost 17.42, or 1.2 %, to 1,490.90.

Investors expect President Donald Trump to announce his choice for the next chair of the Federal Reserve by the end of the week. The central bank has played a pivotal role in the economy's recovery from the Great Recession and the stock market's leap to record after record. Jerome "Jay" Powell, the leading candidate. The choice could have far-ranging effects on the markets, particularly if the new chair advocates a more aggressive policy in raising interest rates than Yellen has. Low interest rates have helped to push returns higher for bond funds, stocks and all kinds of other investments around the world. But pressure may be rising for the Fed to increase rates more quickly.

Most equity markets in Asia declined and bonds added to gains as caution crept into markets following a drop in China’s factory gauge and as investors continue to assess developments on U.S. tax reform. Japan’s Topix index declined 0.2 % as of 2:08 p.m. in Tokyo, while the Nikkei 225 Stock Average was little changed. SoftBank declined as much as 5.8 %. Talks with Sprint, whose shares plunged in U.S. trading, have hit a serious snag over valuation, according to people familiar with the matter. Australia’s S&P/ASX 200 Index fell 0.1 %. The Kospi in Seoul climbed 0.8 %. Hong Kong’s Hang Seng Index dropped 0.1 % and the Shanghai Composite Index lost 0.3 %. Japan’s stocks fell, with SoftBank Group Corp. tumbling the most in almost a year on news that a deal to merge its Sprint Corp. unit with T-Mobile US Inc. may be in jeopardy.

The yen was steady as the Bank of Japan maintained its key policy rate and target for the yield on 10-year government bonds, while showing concerns remain on the inflation outlook. The Bloomberg dollar index bounced from Monday’s drop and is on track for its best month since the election of Donald Trump as U.S. president. Ten as 10-year Treasury yields held below 2.4 %, with Trump’s choice to lead the Federal Reserve due by the end of the week. American tax reform and the outlook for U.S. monetary policy remain dominant market themes.


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