NEW YORK (Reuters) – A gauge of stock markets around the world fell on Tuesday as trade tensions weighed on the outlook for corporate earnings and hopes dwindled over a hefty U.S. interest rate cut, while Mexico’s peso tumbled after the country’s finance minister resigned.
FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., July 1, 2019. REUTERS/Brendan McDermid/File Photo
European and U.S. stocks dropped early after German chemicals giant BASF warned of a 30% fall in its adjusted annual profit, citing trade friction and a global slowdown in growth. In Europe, the broad STOXX 600 ended 0.5% lower.
On Wall Street, an analyst downgrade of 3M Co contributed to a drop in industrial shares. However, the benchmark S&P 500 index pared losses and the Nasdaq posted gains as the internet-focused FAANG stocks rose.
Even so, MSCI’s gauge of stocks across the globe shed 0.18%.
The Mexican peso slid as much as 2.25% against the dollar after Finance Minister Carlos Urzua resigned, citing deep differences over economic issues. It was last down 1.1%.
Some encouraging news on trade came as the United States and China were set to relaunch talks this week after a two-month hiatus. White House economic adviser Larry Kudlow said talks with the European Union to move forward on a trade agreement were also in progress.
Though skepticism remains on how much progress the United States and China have made toward resolving their differences, the day’s developments gave a boost to U.S. Treasury yields and contributed to the paring of losses in U.S. stocks.
“If we do get a resumption of trade negotations, that provides a path for investors to see a more optimistic view,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “But we’ve seen this movie played over and over again.”
The Dow Jones Industrial Average fell 58.78 points, or 0.22%, to 26,747.36, the S&P 500 lost 0.18 points, or 0.01%, to 2,975.77 and the Nasdaq Composite added 35.17 points, or 0.43%, to 8,133.56.
Benchmark 10-year notes last fell 9/32 in price to yield 2.0631%, from 2.034% late on Monday.
The broad focus across markets, though, remained the potential reaction to monetary policy at the world’s top central banks as U.S. Federal Reserve Chairman Jerome Powell is set to give testimony before Congress on Wednesday.
Money market futures <0#FF:> are still fully pricing in a 25 basis-point cut at the Fed’s July 30-31 meeting, but have almost priced out a larger 50 bps move that had been seen as a real possibility just a couple of weeks ago.
“It would be pretty disruptive at this stage for Powell to rule out a cut in July or dampen expectations of a cut in July,” said Michael Metcalfe, head of global macro strategy at State Street Global Markets.
(GRAPHIC-U.S. government debt yield curve: tmsnrt.rs/2YHFE1M)
In currency markets, Britain’s sterling dropped to a six-month low and was last 0.4% lower against the dollar at $1.2465 amid a worsening economic outlook and rising fears about a no-deal exit for Britain from the European Union.
The dollar index, which measures the greenback against a basket of six major currencies, rose 0.13%, while the euro dipped 0.1% to $1.1203.
Oil prices firmed as OPEC supply cuts and Middle East tensions outweighed the U.S.-China trade dispute that has been dragging down the global economy and oil demand.
Brent crude futures settled up 5 cents to $64.16. U.S. West Texas Intermediate crude settled up 17 cents to $57.83.
Spot gold ticked 0.1% higher to $1,396.40 an ounce.
(GRAPHIC-Dot plot, Fed funds futures July 9: tmsnrt.rs/2YLmEzm)
Additional reporting by Kate Duguid, Stephanie Kelly and Richard Leong in New York and Marc Jones, Bozorgmehr Sharafedin and Alex Lawler in London; Editing by Bernadette Baum and Chizu Nomiyama