(Bloomberg) — Stocks paused their advance Tuesday amid signs that the rally has left valuations overextended, while investors weighed the potential political impact of Donald Trump’s Cabinet choices.
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The European STOXX 600 index lost 1%, almost erasing Monday’s rise. US futures fell after five days of gains for the S&P 500. Treasuries also fell as trading resumed after a public holiday. Meanwhile, Bitcoin overcame the declines, extending its record high and approaching the $90,000 mark.
Investors have pushed exposure to the US stock index to three-year highs since Trump’s victory, suggesting the rally may be running out of steam, according to Citigroup analysts. The new administration will reportedly include prominent China hawks, and strategists are weighing the possibility that Trump’s economic policies could stimulate inflation and influence the path of Federal Reserve interest rates.
“There are question marks over another round of Trump tariffs, deficits and upward pressure on the dollar, forcing the Fed to slow the pace of easing,” said Philip Wall, head of portfolio management at Rayliant Global Advisors. “All of these concerns seem to be registering significantly with investors today.”
The Hang Seng Index in Hong Kong fell by 3.3%. Bloomberg reported that Senator Marco Rubio — who has taken an aggressive stance on China’s emergence as an economic power — is expected to be named Secretary of State. Rep. Mike Waltz, who views China as a “bigger threat” to the United States than any other country, is set to become national security adviser.
“Trump’s appointments of well-known China hawks like Marco Rubio and Mike Waltz are already weighing on Hong Kong market sentiment,” said Humin Li, chief macro strategist at Lombard Odier. “This highlights the high likelihood that Trump will follow through on his campaign pledge to impose punitive tariffs on China’s exports to the United States.”
US inflation data scheduled for release on Wednesday is the next major item on the agenda this week for investors. The core CPI, which excludes food and energy, is likely to rise at the same pace on a monthly and annual basis compared to September readings.
Main events this week:
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German Consumer Price Index, ZEW Survey, Tuesday
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Fed speakers included Christopher Waller, Patrick Harker and Neel Kashkari on Tuesday
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The Federal Reserve releases a survey of senior bank loan officers on Tuesday
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Industrial production in the eurozone, Wednesday
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US Consumer Price Index, Wednesday
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Speakers at the Fed include Jeffrey Schmid, Lori Logan, Neel Kashkari and Alberto Muslim on Wednesday.
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Eurozone GDP, Thursday
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US Producer Price Index, Unemployment Claims, Thursday
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Walt Disney earnings Thursday
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Fed speakers include Jerome Powell, John Williams and Adriana Kugler on Thursday
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China Retail Sales, Industrial Production, Friday
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US Retail Sales, Imperial Manufacturing, Industrial Production, Friday
Some key movements in the markets:
Stocks
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The Stoxx Europe 600 Index was down 1% as of 8:33 AM London time
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S&P 500 futures fell 0.1%
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Nasdaq 100 futures were little changed
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Dow Jones Industrial Average futures fell 0.2%
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MSCI Asia Pacific Stock Index fell 1.4%
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MSCI Emerging Markets Index declines 1.9%
Currencies
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The Bloomberg Dollar Spot Index rose 0.4%.
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The euro fell 0.3 percent to $1.0621
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The Japanese yen fell 0.1 percent to 153.94 yen to the dollar
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The yuan in external transactions fell 0.4 percent to 7.2542 per dollar
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The British pound fell 0.6 percent to $1.2797
Cryptocurrencies
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Bitcoin rose 1.1% to $88,941.87
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Ethereum rose 1.4% to $3,372.75
Bonds
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The yield on 10-year Treasury bonds rose five basis points to 4.36%.
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The yield on 10-year German bonds rose one basis point to 2.34%.
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The UK 10-year bond yield rose three basis points to 4.45%.
Goods
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Brent crude rose 0.3 percent to $72.04 a barrel
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Gold in spot transactions fell 0.6 percent to $2,602.69 per ounce
This story was produced with assistance from Bloomberg Automation.
–With assistance from Jason Scott, Charlotte Yang, and Sunil Jagtiani.
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