* G20 drops pledge to resist all forms of protectionism
* Dollar continues drift lower
* U.S. yields capped, curve flatter
By Jamie McGeever
LONDON, March 20 World stocks opened the week on
a cautious footing on Monday after the G20's decision to drop a
pledge to avoid trade protectionism, while the U.S. Federal
Reserve's conservative rate guidance continued to push the
Asian stocks were mixed, European stocks fell as much as 0.3
percent and U.S. futures pointed to a fall of around 0.2 percent
at the open on Wall Street.
The dollar fell to a six-week low, falling four days in a
row for the first time since early November.
"European equity markets have started the week with a heavy
risk-off sentiment after the G20 communiqué explicitly reflected
U.S. intentions to establish trade protectionist measures," said
Ipek Ozkardeskaya, senior market analyst at London Capital
"As the world's number one economy is preparing to set
significant barriers against the world, investors are
increasingly worried," she said.
Financial leaders of the world's biggest economies dropped a
pledge to keep global trade free and open, acquiescing to an
increasingly protectionist United States after a two-day meeting
failed to yield a compromise.
Breaking a decade-long tradition of endorsing open trade,
G20 finance ministers and central bankers made only a token
reference to trade in their communique on Saturday, a clear
defeat for host nation Germany, which fought the new U.S.
government's attempts to water down past commitments.
The FTSEuroFirst index of leading 300 European shares fell
0.3 percent to 1,487 points, and Germany's DAX
and Britain's FTSE 100 also fell 0.3 percent in early
MSCI's broadest index of Asia-Pacific shares outside Japan
rose almost 0.4 percent to hit its highest level
in more than two years on Monday. As a result, MSCI's global
benchmark equity index was little changed.
On Friday, Wall Street was flat to negative, dragged lower
by bank shares that fell along with Treasury yields.
The 10-year U.S. Treasury yield has fallen around 10 basis
points below 2.50 percent since the Fed raised rates
last week for only the third time in over a decade.
The gap between two- and 10-year yields has shrunk, meaning
the yield curve has flattened. This suggests investors are
sceptical growth and inflation will be strong enough to warrant
a sustained cycle of rate hikes, and has subsequently weighed on
After raising rates last week, the Fed reiterated plans for
a total of three rate hikes this year, fewer than the four
markets were expecting.
G20 financial officials reiterated their warnings against
competitive devaluations and disorderly currency markets. The
dollar didn't show much reaction, taking its cue instead from
the moves in U.S. yields.
Currency markets are also focused on a raft of speeches by
Fed officials this week, including Chicago's Charles Evans on
Tuesday and Friday, Chair Janet Yellen on Thursday, Dallas's
Robert Kaplan and Minneapolis's Neel Kashkari on Friday and New
York's William Dudley on Saturday.
"Sentiment towards the dollar has deteriorated
significantly," Societe Generale FX analysts said in a note to
clients on Monday.
The dollar index of its value against a basket of six
currencies fell to a six-week low of 100.02 on Monday.
It fell 0.2 percent against the yen before recovering to
trade flat on the day at 112.70 yen, while the euro
rose 0.3 percent to $1.0770.
Citi became the latest major bank to abandon its headline
forecast for a fall in the euro to below parity with the dollar,
upping its prediction for the single currency over the next six
to 12 months to $1.04 from $0.98 previously.
Attention now turns to the French election, with the first
Presidential debate set to take place on Monday. Opinion polls
show independent centrist Emmanuel Macron would lead far-right
leader Marine Le Pen by a hair in first-round voting, before
beating her in the run-off.
In commodities, oil prices continued their downward trend as
OPEC supplies remained steady despite touted cuts and rising
U.S. drilling contributed to concerns about a supply glut.
U.S. crude dropped 1 percent to $48.29 a barrel.
Global benchmark Brent fell 0.7 percent to $51.40.
The weaker dollar boosted gold, which rose 0.4
percent at $1,233 an ounce, after touching a two-week high
earlier in the session.
(Reporting by Jamie McGeever; Editing by Andrew Heavens)