Protectionism worry drags on stocks, dollar hits six-week low

Published: 9:00 AM, March 20, 2017
Updated: 5:00 AM, March 21, 2017

NEW YORK - The U.S. dollar slumped to a six-week low on Monday on worries over a dovish Federal Reserve, while U.S. and European stock markets dipped amid concerns about G20 financial leaders' decision to drop a pledge to keep global trade free and open.

The dollar index <.DXY>, which measures the greenback against a basket of six major currencies, was last slightly higher at 100.42 after touching its lowest since Feb. 7 of 100.020. The index extended last week's weakness following recent interest-rate guidance from the U.S. Fed that was less hawkish than many had expected.

Caution prevailed over U.S. and European stock markets after financial leaders of the world's biggest economies made only a token reference to trade on Saturday, acquiescing to an increasingly protectionist United States after a two-day G20 meeting failed to yield a compromise.

Lower crude prices weighed on energy shares on both sides of the Atlantic, with European stocks closing modestly lower on the day. A 3.7-percent fall in Deutsche Bank <DBKGn.DE> shares hurt European banking stocks.

Investors were awaiting Fed speakers this week, including Chair Janet Yellen on Thursday.

Anxiety over the G20 decision further stalled the benchmark U.S. S&P 500 index's gains after two straight sessions of declines last week. Still, the index is up more than 11 percent since the election of U.S. President Donald Trump in November, spurred by optimism over his plans to reform the tax code and cut regulation.

"With tax reform and infrastructure spending getting pushed to the end of this year or even next year, it will eventually weigh on sentiment and business confidence," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

"Eventually, the market will lose patience," Frederick said.

The tech-heavy U.S. Nasdaq Composite index briefly bucked the trend and hit a record intraday peak of 5,915.120 before edging lower.

MSCI's all-country world equity index was last down 0.47 points, or 0.1 percent, at 450.79.<.MIWD00000PUS>.

The Dow Jones Industrial Average <.DJI> was last down 12.1 points, or 0.06 percent, to 20,902.52. The S&P 500 <.SPX> was down 5.96 points, or 0.25 percent, at 2,372.29. The Nasdaq Composite <.IXIC> was down 6.77 points, or 0.11 percent, at 5,894.22.

Europe's broad FTSEurofirst 300 index <.FTEU3> ended 0.23 percent lower at 1,488.36.

The dollar's earlier drop to a multi-week low against major rivals made dollar-priced gold cheaper for non-U.S. investors, thereby helping spot gold prices <XAU=> hit a two-week peak of $1,235.50 an ounce.

"It's follow-through and a hangover from last week - the concept of a dovish Fed," said Brad Bechtel, managing director at Jefferies in New York in reference to the dollar's earlier weakness.

Oil prices fell as investors continue to grapple with worries about growing U.S. oil output and high inventories.

Brent crude <LCOc1> was last down 6 cents, or 0.12 percent, at $51.7 a barrel. U.S. crude <CLc1> was down 47 cents, or 0.96 percent, at $48.31 per barrel.

The cautious mood boosted safe-haven Treasuries prices, helping push yields on safe-haven 10-year U.S. Treasury notes <US10YT=RR> to a two-week low of 2.472 percent. REUTERS