Stocks pull back from record highs, set for second day of losses in new year

LONDON - 17 January 2018: World shares pulled back from record highs on Wednesday, set for only their second day of losses in the new year as lower commodity prices and a string of downbeat updates from companies dampened the mood in global markets.

European bourses opened lower, mirroring moves in Asia and Wall Street overnight, as earnings updates from companies weighed. The pan European STOXX 600 index was down 0.2 percent, but still close to a 2-1/2 year high hit earlier this month.

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Asian equities stepped back from a record high as the region's resource shares were knocked by falling oil and commodity prices. Oil prices have retreated from the $70 a barrel mark hit last week, while metals such as aluminum and copper and nickel all fell on Wednesday. Japan's Nikkei .N225 fell 0.4 percent from its 26-year peak reached the previous day.

The losses across regions weighed on the MSCI world equity index, pulling it lower 0.1 percent and setting it up for only its second decline from the start of the year.

World shares have rallied in 2018 on prospects of continued strong global growth and improving earnings in the United states and elsewhere, with many analysts expecting an extension of the bull run in equities.

Earlier overnight, Wall Street paused its rally, hit by a 1.2 percent fall in energy stocks .SPNY as well as weakness in General Electric (GE.N).

“There wasn’t any immediate catalyst for yesterday’s sharp sell down apart from some weakness in commodity markets, but U.S. markets’ inability to hold onto these sorts of gains might suggest that we could be due some sort of pullback, after the strong start to this year,” said Michael Hewson, chief market analyst at CMC Markets in London.

The Cboe volatility index .VIX, which measures investors’ expectation on price swings in U.S. shares, rose to a one-month closing high of 11.66 from near record low levels seen earlier this month.

The 2-year U.S. Treasury yield hit its highest level since late 2008, at 2.0390 percent. US2YT=RR

EURO SIZZLES

In currencies, the euro fell after rocketing to a fresh three-year high in early trades, above the $1.23 mark.

Overall dollar weakness and growing optimism about the outlook of the European economy in 2018 has lent fresh legs to the euro’s rally after it gained more than 10 percent last year.

But the speed of the rise in the opening days of 2018 -- up more than 3 percent in the last two weeks -- has invited some comments from ECB officials this week, highlighting some growing concerns, according to analysts.

“The ECB is playing the good cop and the bad cop in terms of their comments over the euro but there is no doubt the currency’s rally has sowed the seeds of uncertainty in the ids of ECB policymakers,” said Viraj Patel, an FX strategist at ING in London.

The Canadian dollar traded at C$1.2452 per dollar CAD=D4, off its three-month high of C$1.2355 hit on Jan 5.

The Bank of Canada is seen as likely to raise its benchmark interest rate by 25 basis points to 1.25 percent later in the day, with analysts expecting three hikes this year.

Against a basket of currencies, the U.S. dollar was up 0.3 percent, but not far from its lowest level since early 2015. .DXY

Gold traded 0.3 percent lower at $1,335.8 per ounce XAU=, near Monday’s four-month peak of $1,344.7.

Bitcoin extended its sharp tumble of the past 24 hours, skidding more than seven percent on Wednesday as investors were spooked by fears regulators might clamp down on the digital currency.

The price of the world's biggest and best known cryptocurrency fell to as low as $10,567 on the Luxembourg-based Bitstamp exchange BTC=BTSP.

Oil prices pulled back from three-year highs as traders booked profits but healthy demand underpinned prices, which have been driven up by oil production curbs in OPEC nations and Russia, and demand amid healthy economic growth.

U.S. crude futures CLc1 last traded at $63.61 per barrel, down 0.2 percent.

Global benchmark Brent crude futures LCOc1 fetched $68.97 a barrel, down 0.3 percent.