Global Stock Rally Pauses as Dollar Halts Decline
European and Asian stock markets were mixed Monday, while the U.S. dollar picked up strength after reaching three-year lows last week.
The Stoxx Europe 600 was slightly lower just ahead of the market open in New York, dipping 0.1% to leave the index up 2.7% for 2018 so far.
U.S. equity futures also pointed to a pause in the rally there, with Dow Jones Industrial Average and S&P 500 futures each down 0.2%.
Technology and basic resources stocks rose in Europe, by 0.6% and 1.2% respectively. Food and beverage stocks were some of the index's worst performers, down 0.8%.
The Wall Street Journal Dollar Index was up by 0.3% in European trading. The euro was down 0.3% against the dollar at $1.239, and the dollar was up 0.2% against the yen at Yen108.8.
Elsewhere in markets, the recent pickup in bond yields continued. Five-year German government bond yields rose back into positive territory for the first time since 2015.
As recently as the middle of 2017 the five-year yield was minus 0.39%.
Likewise, 10-year U.S. Treasury yields hit fresh highs at 2.715% in European trading Monday, the highest level since 2014.
Last week, the dollar slid to a series of three-year lows following comments from Treasury Secretary Steven Mnuchin that were interpreted as being accepting of a weaker dollar. The WSJ Dollar Index had fallen for seven straight weeks, the longest run since 2010.
"It will now be very difficult for Washington to put the 'weak dollar' genie back in the bottle. The damage is already done," said Viraj Patel, FX analyst at ING. "The natural tendency will be for the greenback to fall over the course of 2018."
Investors are also looking ahead to the Federal Reserve decisions on monetary policy coming Wednesday. Few analysts expect the Fed to raise interest rates again at the meeting.
"We don't think they're going to do anything this week but they may well lay the ground for a March rate hike," said Mike Bell, global-market strategist at J.P. Morgan Asset Management.
"We don't really see any reason why the Fed shouldn't be putting rates up four times this year," he said. "The weaker dollar puts some upward pressure on U.S. inflation, basically working against the Fed as it tries to tighten policy."
Stocks in China and Hong Kong dropped, with a 1% fall in the Shanghai Composite Index, which had risen in 19 of the past 21 trading days, hitting two-year highs. The Shenzhen A-Share Index fell by 1.6%.
Hong Kong's Hang Seng -- which had risen in 24 of the last 27 trading days, hitting multiple record highs on the way -- was down 0.4%.
"The market had been bracing for a near-term correction for a while," said Kevin Leung, director of global investment strategy at Haitong International Securities Group in Hong Kong.
Mr. Leung added that regulatory caution regarding "mainland investors dumping money into Hong Kong" and the looming expiration of some equities futures contracts likely provided reasons to sell.
Local reports in China said regulators spoke of clamping down on "high-priced" stocks. The comments came after the Ministry of Commerce said last week it will closely monitor overseas investments that exceed $300 million, with authorities watching outbound investment in "sensitive markets."
Korea's Kospi hit another record high, climbing 0.9%. Japan's Nikkei 225 closed roughly flat.
Among individual stocks, Hong Kong-listed Wynn Macau fell 6.5%, cutting the month's gain to around 14%, after The Wall Street Journal reported over the weekend that employees at parent Wynn Resorts and others interviewed alleged that Steve Wynn sexualized the workplace and pressured workers to perform sex acts. Mr. Wynn stepped down from his post as Republican National Committee finance chairman.
Las Vegas mogul Mr. Wynn said "the idea that I ever assaulted any woman is preposterous." Wynn Resorts shares slumped 10% Friday in the U.S.
Write to Mike Bird at Mike.Bird@wsj.com and Kenan Machado at kenan.machado@wsj.com
(END) Dow Jones Newswires
January 29, 2018 08:23 ET (13:23 GMT)