NEW YORK, Feb 20 (Reuters) – The rally in U.S. equities took
a pause and the strong dollar got stronger on Thursday, rising
to a three-year high against a basket of trading partner
currencies, after a steep slide in the Japanese yen called into
question its safe-haven status.
Gold prices hit their highest in seven years as investors
sought safe-haven assets after a rise in the number of new
coronavirus cases in South Korea. Oil prices rose, supported by
China’s efforts to bolster its virus-weakened economy.
The dollar has surged almost 2% since Tuesday against the
yen, reaching its highest in almost 10 months, and the greenback
climbed to near three-year highs against the euro.
The dollar index , a basket of the world’s most-traded
currencies, was up 0.16% to its highest level since April 2017.
The index is up 3.6% this year. It also gained to its best
levels of the year against China’s offshore yuan.
A host of reasons were cited for the dollar’s move, ranging
from outperformance of the U.S. economy and corporate earnings
to potential recessions in Japan and the euro zone.
A run of dire economic news out of Japan has stirred talk
the country is already in recession and that Japanese funds were
dumping local assets in favor of U.S. shares and gold.
“The strongest explanation (for the yen’s decline) is a
widespread selling by Japanese asset managers amid growing fears
about the health of Japan’s economy,” said Raffi Boyadijian,
investment analyst at XM.
The yen’s slide is unusual because the exchange rate with
the dollar has been shedding its close correlation to the price
of gold and U.S. Treasury yields, a development to be watched,
he said.
“This raises question marks about whether the yen is losing
some of its shine as the world’s preferred safe-haven currency,”
Boyadijian said.
Many investors are looking to buy U.S. or other assets that
would be relatively unaffected by the cyclical environment, said
Jason Draho, head of Americas asset allocation at UBS Global
Wealth Management.
China reported a drop in new virus cases and announced an
interest rate cut to buttress its economy. But
South Korea recorded an increase in new cases, Japan reported
two deaths and researchers said the pathogen seemed to spread
more easily than previously believed.
A rally that had lifted major U.S. and European stock
indexes to record highs this week lost steam, as investors
fretted about the spread of the coronavirus outside of China.
MSCI’s gauge of stocks across the globe shed
0.49% and emerging market stocks lost 0.76%.
The pan-European STOXX 600 index lost 0.86%.
Paris’ main index fell 0.8% as luxury stocks, which
derive a chunk of their demand from Chinese customers, fell
after the number of coronavirus cases outside China spiked.
LVMH , Kering and spirits maker Pernod
Ricard slid between 2.2% and 3.5%.
Analysts cited a Global Times report that said a central
Beijing hospital recorded 36 new cases among hospital staff and
patients’ families, causing U.S. stocks to drop further on fear
infections could be rising rapidly in the capital. The Dow Jones Industrial Average fell 128.05 points,
or 0.44%, to 29,219.98. The S&P 500 lost 12.92 points, or
0.38%, to 3,373.23 and the Nasdaq Composite dropped
66.22 points, or 0.67%, to 9,750.97.9,750.97
U.S. gold futures settled up 0.5% at $1,620.50 an
ounce. Spot gold hit its highest since February 2013 at
$1,622.19 an ounce.
Oil prices rose further after a U.S. report showed a draw in
gasoline inventories and a much smaller-than-anticipated rise in
crude stocks.
U.S. gasoline stockpiles fell 2 million barrels
in the week to Feb. 14. Analysts had estimated an increase of
400,000 barrels.
Data from the U.S. Energy Information Administration (EIA)
showed that crude inventories rose only 414,000
barrels last week, compared with a 2.5 million-barrel rise that
analysts had expected in a Reuters poll. Brent crude futures rose 19 cents to settle at
$59.31 a barrel and West Texas Intermediate gained 49
cents to settle at $53.78 a barrel.
Demand for safe-haven U.S. Treasury debt was robust, driving
the 30-year bond yield below the psychologically significant 2%
level to its lowest since September 2019.
The 30-year bond last rose 38/32 in price to
push its yield down to 1.9633%.
Benchmark 10-year notes last rose 15/32 in price
to yield 1.5186%.
Longer-dated euro zone government bonds led a broad rally as
concerns about an economic slowdown in the region and
virus-related damage to Asian growth boosted demand for
government debt.
The 10-year German government bond yield slid 3 basis points
to -0.44% , close to 3-1/2-month lows reached earlier
in February.
(Reporting by Herbert Lash; additional reporting by Ritvik
Carvalho in London; editing by Jonathan Oatis and Tom Brown)
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