By Riva Gold and Kenan Machado
Global stocks found little traction Friday, while the British
pound inched up on the first anniversary of the U.K.'s vote to
leave the European Union.
The Dow Jones Industrial Average slipped 38 points, or 0.2%, to
21360 shortly after the opening bell. The S&P 500 fell less
than 0.1%, while the Nasdaq Composite declined 0.1%.
Among the notable decliners, shares of Bed Bath & Beyond
fell 11% after its earnings missed expectations.
Bank shares were a touch higher after the Federal Reserve said
the largest banks survived a hypothetical "stress test," suggesting
some could win the Fed's approval to increase dividend payouts to
investors next week.
The Stoxx Europe 600 slipped 0.4% amid losses in autos and food
and beverage companies, while London's export-heavy FTSE 100
declined 0.4% as the pound climbed 0.4% to $1.2728, paring the
week's declines.
Since the June 23 U.K. referendum in 2016, the FTSE 100 index,
which generates roughly two-thirds of its revenue overseas, has
climbed about 17%, while the pound has fallen roughly 15%. The
pound now looks cheap compared with historical levels, but U.K.
interest-rate expectations have fallen significantly since the
vote, with growth expected to slow this year, keeping the currency
under pressure.
"We don't see a recession on the horizon," said Ed Smith,
strategist at Rathbones. "But the only thing that has really driven
the U.K. economy higher over the last two years has been the
consumer and household spending, and we think that's going to
suffer," he said, noting the sharp fall in the pound has
precipitated a rise in inflation that has outpaced real wage
growth.
More domestically-oriented U.K. shares have underperformed the
wider rally in the global equity market. Data from independent
trade ideas network TIM Group suggests that while in June 2016, the
long-short idea ratio for U.K. and other European shares was nearly
identical, continental Europe has rebounded, while the outlook for
U.K. stocks has remained daunting.
Shortly after the Brexit vote, "There was a fear it was opening
the door to a more profound movement and the European project was
under significant threat", said François Savary, chief investment
officer at Geneva's Prime Partners. Since then, French and Dutch
elections have eased political fears around the continent, and the
eurozone economy has continued to improve, supporting the region's
stock markets.
The eurozone's economy slowed slightly in June, but still had
its strongest quarter in more than six years, according to a survey
of activity in the manufacturing and services sectors published
Friday.
Elsewhere in markets, yields on 10-year Treasury notes were
little changed at 2.150% from 2.153% Thursday, while the WSJ Dollar
Index edged down 0.2%.
U.S. crude oil slipped 0.3% to $42.61 a barrel. Oil prices have
been a drag on stock markets this week.
While a lower oil price should support consumers and
oil-importing countries, it has put pressure on shares of energy
companies and equipment makers. It has also added to investors'
doubts about the outlook for higher inflation, with some analysts
expecting to see traces of the oil price drop showing up in
eurozone and Japanese inflation figures next week.
Investors poured into so called "deflation" assets this week and
took money out of inflation bets, according to analysis of EPFR
Global data by Bank of America Merrill Lynch. Real-estate funds
posted their first inflows in 11 weeks, while utilities funds had
their best week in 51 weeks as both tend to benefit from softened
inflation expectations. Treasury inflation-protected securities,
known as TIPS, suffered outflows. TIPS increase their payout to
holders if inflation measures exceed certain thresholds.
Earlier, Shanghai stocks recovered to trade up 0.3% in a
volatile session after increased regulatory scrutiny over the
borrowings of China's most prolific overseas deal makers sent
markets lower. The Shanghai Composite Index dropped as much as 0.9%
following news that regulators had ordered banks to check their
loans to major Chinese conglomerates.
The choppy moves could heighten apprehensions about volatility
that bogged down Chinese markets for most of last year, just days
after index compiler MSCI decided to include A-shares in its
emerging markets indexes next year. A dominance of retail traders
that move in and out of the world's second-biggest stock market has
meant that trades often happen on rumor and sentiment.
Japan's Nikkei Stock Average rose 0.1% despite a preliminary
survey showing that the nation's manufacturing activity slowed in
June, as air-bag maker Takata surged Friday after steep falls
earlier in the week.
In South Korea, shares climbed 0.4% after the country's
president, Moon Jae-in, said he would lobby China to lift
restrictions it imposed on his country's businesses following the
installation in Korea of a U.S. missile defense system that Beijing
opposes.
Australia's S&P ASX 200 added 0.2% as gains from mining and
energy stocks were mostly offset by selling in banking stocks,
after one of the country's states proposed a tax on liabilities
that would piggyback on a recently launched federal levy on the
country's biggest lenders.
--Shen Hong and Ryan Tracy contributed to this article.
Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at
kenan.machado@wsj.com
(END) Dow Jones Newswires
June 23, 2017 09:54 ET (13:54 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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