GLOBAL MARKETS-Stocks retreat from record highs, dollar eases

Mon Jul 7, 2014 4:14pm EDT

* Drop in German industrial output dents global equities
    * Investors look to second-quarter corporate earnings
    * Dollar trades flat versus euro, down versus yen
    * Crude oil trades lower

 (Adds close of U.S. markets)
    By Herbert Lash
    NEW YORK, July 7 (Reuters) - The dollar eased and global
equity markets fell on Monday after a surprise drop in German
industrial output cooled a rally that sent various stock indexes
to record highs last week and as investors turned to corporate
earnings for the second quarter.
    German industrial production fell 1.8 percent in May from
April in the biggest drop in more than two years, a decline that
confounded expectations of unchanged output. 
    The arrival of the earnings season and a reassessment by
some Wall Street economists as to when the Federal Reserve is
likely to begin raising interest rates after last week's strong
U.S. employment report also weighed on sentiment.
    Economists at Goldman Sachs brought forward their
expectations of the first rate increase to the third quarter of
2015 from the first quarter of 2016, following similar actions
from some other banks last week. 
    Wall Street retreated from record highs hit on Thursday by
the S&P 500 and Dow industrials, while MSCI's all-country world
index also slipped after hitting a record the same day. U.S.
markets were closed on Friday for the Independence Day holiday.
    The blended earnings-per-share growth rate for the S&P 500
in the second quarter is 6.2 percent, according to Thomson
Reuters. Of the 22 companies in the S&P 500 that have reported
earnings so far, 63.6 percent beat analyst expectations, in line
with a typical quarter over the past 20 years.
    "This earnings season has a lot of pressure on it, since we
need to see significant revenue growth to offset weakness in the
first quarter," said Oliver Pursche, president of Gary Goldberg
Financial Services in Suffern, New York.
    MSCI's ACWI was down 0.41 percent, while the
pan-European FTSEurofirst 300 index of leading regional
shares fell 0.9 percent to close at 1,381.64.
    The Dow Jones industrial average closed down 44.05
points, or 0.26 percent, to 17,024.21. The S&P 500 lost
7.79 points or 0.39 percent, to 1,977.65, and the Nasdaq
Composite dropped 34.395 points or 0.77 percent, to
4,451.53.
    The decline in German industrial output took a toll on
sentiment.
    "It rings alarm bells across Europe that the recovery is not
a straight line upwards," James Butterfill, global equity
strategist at Coutts, said.
    The U.S dollar fell against the euro as investors speculated
about when the Fed is likely to begin raising interest rates.
    The dollar has gained and the Treasuries yield curve has
flattened since the U.S. Labor Department reported on Thursday
that nonfarm payrolls increased by 288,000 jobs in June and the
unemployment rate fell to 6.1 percent from 6.3 percent in May.
 
    The euro was last up 0.09 percent against the dollar 
at $1.3605. The dollar was down 0.27 percent versus the Japanese
yen at 101.82 yen. 
    The 10-year U.S. Treasury note rose 8/32 in
price to yield 2.6174 percent.
    Oil prices fell. Brent fell 40 cents to settle at
$110.24 a barrel. U.S. oil settled down 53 cents to
$103.53 a barrel.

 (Reporting by Herbert Lash; Additional reporting by Marc Jones;
Editing by Meredith Mazzilli and Leslie Adler)
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