Markets Fall as Comey Testimony, U.K. Elections Unsettle Investors -- 2nd Update

By Kenan Machado Features Dow Jones Newswires

Global shares extended declines and haven asset prices rose on Tuesday as investors remained cautious ahead of U.K. elections and testimony on possible Russian interference in the 2016 U.S. presidential election.

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The Stoxx Europe 600 was down 0.4% in early trade, dragged lower by health-care shares. Futures pointed to a second straight day of losses on Wall Street, with S&P 500 futures down 0.2% recently. Shares in Asia were mostly lower.

Investors also moved into typical havens, with gold, the Japanese yen and Treasury bond prices all rising.

Various stock markets around the world, including the S&P 500 and Dow Jones Industrial Average, climbed to record highs last week amid optimism about the health of the global economy and corporate earnings growth.

While few are predicting a sharp correction in stocks, there are a number of potential flashpoints this week that could unsettle investors.

Former U.S. Federal Bureau of Investigation Director James Comey's public testimony about alleged Russian interference in the 2016 election is scheduled for Thursday. A closer-than-expected U.K. general election and a meeting of the European Central Bank will take place on Thursday too, and investors are also mindful of ongoing geopolitical tensions in the Middle East.

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"The market sentiment remains very fragile," said Masashi Murata, a senior currency strategist at Brown Brothers Harriman. "We can't expect the U.S. to grow at over 3% this year, at least under the Trump administration in the middle of political scandals."

Some investors expect the fallout from the investigation of alleged Russian meddling in the U.S. election to hamper Mr. Trump's efforts to push through his agenda, including sweeping tax cuts.

Investors also seem to have set aside hopes for economic stimulus in the U.S. soon, said Bart Wakabayashi, Tokyo branch manager at State Street. "We've forgotten and moved on," he said.

Fading hopes for greater fiscal stimulus has pushed down the U.S. dollar and the yield on 10-year Treasury note back to levels seen before Mr. Trump's election.

Some investors say the fall in Treasury yields is sending a very different signal to the stock market resting near record highs.

"One of those is forecasting a lot of pessimism and the other a lot of optimism," said David Vickers, a portfolio manager at Russell Investments, who thinks the truth lies somewhere between those two extremes.

Still, Mr. Vickers thinks U.S. stocks are too high given a "thoroughly mediocre" U.S. economy.

"The market is expecting higher economic growth, which we don't think you're going to get," he added.

The 10-year Treasury yield declined to 2.157% from 2.182% on Monday, according to Tradeweb, as investors moved into havens. Gold prices were up 0.7% at $1,292 an ounce. Meanwhile, in currency markets, the yen rose 0.7% against the dollar.

The stronger yen, which hurts Japanese exporters, weighed on Tokyo shares. The Nikkei Stock Average fell 1%.

Elsewhere in the region, Australia's S&P/ASX 200 fell 1.5%. Brokerages there cut estimates of first-quarter economic growth to the lowest since the third quarter of 2009. That came as Australia posted a current-account deficit for the quarter, the first since 1975.

Shares in Hong Kong bucked the trend, with the Hang Seng Index ending up 0.4% thanks to heavy buying of Chinese property developers by mainland Chinese investors. Chinese shares also ended slightly higher.

Brent crude oil prices recovered after falling in Asian trade to $49.58, up 0.2% on the day. That followed a volatile session on Monday after Saudi Arabia, Bahrain, Egypt and the United Arab Emirates cut diplomatic ties with Qatar.

In currency markets, the WSJ Dollar Index, a measure of the dollar against 16 other currencies, was down 0.2%, close to where it was on Nov. 8, before Mr. Trump's victory sent the dollar soaring.

Suryatapa Bhattacharya and James Glynn contributed to this article.

Write to Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

June 06, 2017 04:14 ET (08:14 GMT)