Article Highlights

  • Trump threatens government shutdown, scrap trade accord
  • Euro gains on strong PMI reports
  • Oil gains on eighth weekly U.S. crude stock drawdown
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Stocks on Wall Street, the dollar and Treasury debt rates all fell on Wednesday after U.S. President Donald Trump’s threat to shut down the government and nix a trade accord with Canada and Mexico gave investors pause.

European equities shrugged off a survey that showed euro zone manufacturing businesses in August had their best month of growth in six and a half years.

The upbeat survey was the latest sign of economic recovery in the single currency bloc, which may lead the European Central Bank to start scaling back its stimulus program.

Trump’s comments at a rally in Phoenix on Tuesday came as lawmakers face a deadline in late September to raise the U.S. debt ceiling or risk defaulting on debt payments.

Fitch Ratings said a failure to raise the federal debt ceiling in a timely manner would prompt the credit ratings agency to review the U.S. sovereign rating “with potentially negative implications.”

Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut, said the willingness to shut down the government over funding for a wall on the Mexican border doesn’t inspire confidence.

But how much emphasis to put on Trump’s remarks is hard to say, said John Canavan, market strategist at Stone & McCarthy Research Associates in New York.

“It’s largely dependent on Congress to keep the government open. You can’t entirely discount his comments, but based on the history of his off-the-cuff comments you can’t take them as policy stance,” Canavan said.

MSCI’s gauge of stocks across the globe shed 0.06 percent and the pan-European FTSEurofirst 300 index closed down 0.51 percent. Stocks closed higher in Asia.

On Wall Street, the Dow Jones Industrial Average closed down 87.80 points, or 0.4 percent, to 21,812.09. The S&P 500 lost 8.47 points, or 0.35 percent, to 2,444.04 and the Nasdaq Composite dropped 19.07 points, or 0.3 percent, to 6,278.41.

Oil prices rose after U.S. crude inventories declined for the eighth straight week and U.S. crude production increased only slightly.

Brent crude futures rose 70 cents to settle at $52.57 a barrel, while U.S. West Texas Intermediate crude futures settled at $48.41, up 58 cents.

Dovish comments by ECB chief Mario Draghi had little market impact though investors were keeping a close eye on monetary policy a day before the start of a central bank symposium in Jackson Hole, Wyoming.

Neither Federal Reserve Chair Janet Yellen nor Draghi is going to tip their hand on the future of monetary policy tightening in their speeches, said Michael Arone, chief investment strategist at State Street Global Advisors.

“It’s going to be somewhat of a non-event, even though we’ll all have our eyes glued to what comes out of there,” Arone said. “The most exciting thing about Jackson Hole this week is probably going to be the fishing.”

The dollar fell 0.55 percent to 108.96 yen, with the dollar index slipping 0.4 percent to 93.167.

The euro was propped up by strong German and French PMI survey readings, though analysts warned its gains could be short-lived due to concerns about heavy one-sided bets.

The euro rose 0.48 percent to $1.1817 and hit a fresh 10-month peak against the British pound, above 92 pence.

Sterling fell below $1.28 for the first time since late June. Concerns about Britain’s economic prospects and the Brexit process encouraged investors to push the pound lower.

Benchmark 10-year Treasury notes were last up 13/32 in price to yield 2.1694 percent.

“To the extent that equities are reacting to last night’s speech … you can say that’s bleeding now into fixed income,” said Jim Vogel, an interest rate strategist at FTN Financial in Memphis.