U.S. Equity Markets Tumble as Politics Enter the Mix

The major U.S. equity indexes settled mixed on Monday with the brunt of the selling pressure hitting the Dow Jones Industrial Average and the S&P 500 Index. The NASDAQ Composite managed to eke out a small gain as the indexes basically reversed last week’s price action.

Stocks were pressured early in reaction to the news from over the weekend that China had cancelled trade talks with United States. While not a deal breaker since the talks were pushed to after the U.S. November mid-term elections, it was a cause of worry for some investors who decided the best course of action was to lighten up on the long side.

In the cash market, the blue chip Dow Jones Industrial Average settled at 26562.05, down 181.45 or -0.68%. The benchmark S&P 500 Index closed at 2919.37, down 10.30 or -0.35% and the tech-based NASDAQ Composite finished at 7996.89, up 9.93 or +0.12%.

After the initial sell-off, stocks were hit with a second wave of selling pressure shortly after the opening on reports that Deputy Attorney General Rod Rosenstein was about to resign or be fired. Trading conditions calmed shortly thereafter after the White House later said in a statement Rosenstein and President Donald Trump will meet on Thursday amid the conflicting reports.

U.S. Treasury Markets

Treasury traders shrugged off the news about China and Rosenstein, choosing instead to focus on the widely expected Fed rate hike on Wednesday and inflation news from the Euro Zone.

The yield on the two-year Treasury note reached its highest level since 2008 on Monday after European Central Bank President Mario Draghi highlighted an uptick in underlying inflation in the European economy.

The two-year rate hit a high of 2.842 percent in early trading, its highest since June 25, 2008, when it traded as high as 3.014 percent.

Forex Markets

The EUR/USD posted a volatile trade on Monday, first rallying to its highest level since June 14 after ECB President Mario Draghi described an acceleration in underlying inflation in the Euro Zone as “relatively vigorous” and expressed confidence that a pick-up in wage growth would continue.

However, the Euro retreated throughout the session to close lower after Draghi reaffirmed the ECB’s pledge to keep rates at their current, rock-bottom level “through the summer” of next year, effectively rebuffing calls from some policymakers to tighten policy more quickly.