U.S. Stock Rally Stalls as Iran Tensions Increase: Markets Wrap

(Bloomberg) -- This week’s equity rally slowed as U.S. and European stocks edged lower following declines throughout much of Asia. Oil gained as escalating tensions with Iran fanned fears of conflict that would disrupt energy supplies from the Middle East.

After closing at a record on Thursday, the S&P 500 fell for the first time in five days, with trading volume and volatility set to be higher than usual as futures and options expire. The dollar steadied after slumping in the wake of the Federal Reserve’s dovish signals earlier in the week, while gold trading around $1,400 an ounce for the first time since 2013.

Oil fluctuated after President Donald Trump said he approved strikes overnight against Iran in retaliation for downing a U.S. drone, but then called off the operation. West Texas Intermediate remained on pace for its biggest weekly increase since December 2016.

Policy makers in the U.S., Europe and Australia were among those signaling a readiness to do more to support growth this week, helping fuel gains for equities while putting increased pressure on sovereign bond yields. Next week, the trade issue is back up: Trump and Chinese President Xi Jinping are set to meet during the Group of 20 summit in Japan.

Gains for stocks have “been built on the potential for monetary policy support from the Federal Reserve on one side, and the easing of trade tensions on the other,” Alex Dryden, global market strategist at JPMorgan Asset Management, told Bloomberg TV. “That is not the best basis for building an equity market rally in a sustainable manner.”

The euro strengthened and most European bonds slipped after data showed economic activity in the region improved in June. Health care firms weighed on the Stoxx 600 Index. Asian markets were also red overall, with Japanese, South Korean and Australian shares declining as Chinese stocks rose.

These are the main moves in markets:

Stocks

The S&P 500 Index fell 0.1% as of 10:11 a.m. New York time. The Nasdaq Composite Index dropped 0.2% and the Dow Jones Industrial Average was little changed.The Stoxx Europe 600 fell 0.4%.The MSCI Emerging Market Index gained less than 0.1%.The MSCI Asia Pacific Index dropped 0.5%, the first decrease in four days.

Currencies

The Bloomberg Dollar Spot Index rose less than 0.1%.The euro gained 0.3% to $1.1324, while the yen weakened 0.3% to 107.61 per dollar. The British pound fell 0.2 to $1.2671.The MSCI Emerging Markets Currency Index was little changed.

Bonds

The yield on 10-year Treasuries increased 2 basis points to 2.05%.Germany’s 10-year yield climbed 4 basis points to -0.29%.Britain’s 10-year yield rose 4 basis points to 0.84%.

Commodities

West Texas Intermediate rose 1.3% to $57.41 a barrel. Gold increased 0.6% to $1,396 an ounce. The Bloomberg Commodity Index fell less than 0.1%.

To contact the reporters on this story: Vildana Hajric in New York at vhajric1@bloomberg.net;Yakob Peterseil in London at ypeterseil@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka

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