GLOBAL MARKETS-U.S. stocks pulled lower by financials; gold hits record highs

Wall Street stocks turned negative while gold prices surged on Thursday as declining financial shares and simmering trade tensions between the United States and China dampened investor enthusiasm. All three major U.S. stock indexes reversed earlier gains by late morning as safe-haven seekers continued to send gold to fresh highs. Disappointing results from Travelers and Zions Bancorp's disclosure that it would take a $50 million loss in the third quarter pulled the financial index down more than 2%, overshadowing renewed artificial intelligence fervor driven by chipmaker TSMC's record profit and full-year guidance hike.

"In the absence of data, the banks are going to be providing the sort of data substitute," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. "We're seeing hefty declines in some of these banks and financials that are especially credit sensitive, so maybe credit quality is deteriorating." "The dollar's pretty weak today, and crypto's getting killed too," Carlson added. "It's a risk-off day. Signs of a dampening labor market appear to be making the case for easing monetary policy. Federal Reserve Governor Christopher Waller said on Thursday that "based on all the data we have ... I believe that (the Fed) should reduce the policy rate another 25 basis points" at the conclusion of this month's monetary policy meeting on October 29.

Financial markets are pricing in a 96.8% likelihood of an October rate cut, according to CME's FedWatch tool. Investors were eying the latest developments in the escalating U.S.-China trade dispute. Top U.S. trade officials condemned China's expansion of crucial rare earth exports, while Beijing accused Washington of stoking global panic over supply chain disruption. Trade uncertainty is one driver helping to launch gold prices to all-time highs, according to Stovall.

"Because of the trade tensions, a lot of central banks, global central banks are buying gold and that is being helped by lower interest rates as well as the weakening U.S. dollar," said Sam Stovall, chief investment strategist of CFRA Research in New York. "It’s not a reaction to worries about the global economy, but rather political uncertainty." The Dow Jones Industrial Average fell 468.39 points, or 1.01%, to 45,786.10, the S&P 500 fell 76.83 points, or 1.14%, to 6,594.74 and the Nasdaq Composite fell 263.20 points, or 1.15%, to 22,409.47. European stocks advanced as investors took largely upbeat corporate earnings to heart amid easing political tensions after French Prime Minister Sebastien Lecornu survived a confidence vote. French blue chip shares advanced 1.4%. MSCI's gauge of stocks across the globe fell 4.22 points, or 0.43%, to 981.20. The pan-European STOXX 600 index rose 0.69%, while Europe's broad FTSEurofirst 300 index rose 15.27 points, or 0.68%.

The dollar edged lower against the euro and the yen as market participants watched tariff negotiations and parsed dovish comments from Federal Reserve officials. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.29% to 98.39, with the euro up 0.33% at $1.1683. The yield on benchmark U.S. 10-year notes fell 7.1 basis points to 3.975%, from 4.045% late on Wednesday. The 30-year bond yield fell 5.6 basis points to 4.5834% from 4.639% late on Wednesday. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 8.6 basis points to 3.42%, from 3.506% late on Wednesday. Oil prices turned lower, weighed by concerns over softening demand as investors dismissed supply issues arising after U.S. President Donald Trump said India's Prime Minister Narendra Modi pledged to halt Russian oil imports.

U.S. crude dropped 1.39% to settle at $57.46 a barrel, while Brent settled at $61.06 per barrel, down 1.37% on the day. Gold continued to benefit from trade tensions and the U.S. government shutdown as investors flocked to the safe-haven metal. Spot gold rose 1.83% to $4,284.60 an ounce. U.S. gold futures rose 2.47% to $4,280.00 an ounce.