Dollar shakes off Clinton probe, stocks shaky
The dollar steadied but stock markets remained wobbly yesterday after news the FBI was investigating more emails linked to Hillary Clinton’s use of a private server while she was secretary of state. The weakest German retail sales in two years, a dip in oil prices and one of the toughest month in years for bond markets all made for a shaky session in Europe, where the STOXX 600 index dropped 0.4 percent.
Wall Street looked set for a subdued restart too, having been hit by the news of the FBI moves on Friday, though a string of M&A deals including one involving the oil and gas arm of General Electric provided some support. MSCI’s 47-country ‘All World’ index was also flat and heading for a 1.7 percent drop in October. That would be its first monthly fall since June and its worst month since a global shakedown in January.
The dollar saw a recovery however, rising against the yen, euro and sterling on the day and heading for its best month - up 3.2 percent - against the world’s top currencies in just under a year.
The FBI announcement has thrown open the US presidential race and given new hope to Clinton’s Republican rival Donald Trump that he can beat her on Nov 8. “The Clinton story of course has had an impact,” said Richard Benson, co-head of portfolio management at currency fund Millennium Global in London. “The polls are now roughly 50-50, but the probabilities are still hugely in favor of Clinton, given how the votes are spread out (per state). The question is whether people decide to reduce risk ahead of the election.”
US Federal investigators have secured a warrant to examine newly discovered emails, a source told Reuters on Sunday. Clinton had opened up a lead over Trump in national polls, but it had been narrowing even before the email controversy resurfaced. An ABC News/Washington Post poll released on Sunday showed Clinton with a statistically insignificant 1-point national lead.
The Mexican peso, which has become a market proxy for the Clinton/Trump race, also rebounded in European trading after being knocked on Friday.
South Africa’s rand rallied too as fraud charges were dropped against the finance minister, though emerging market stocks struggled more broadly as the end of their four-month winning streak loomed.
The euro dropped to $1.0952 as data showed the eurozone economy growing at the same slow pace in the third quarter as it had in the second, and core inflation dipping, reinforcing expectations the European Central Bank will extend its asset-buying program in December. The jittery mood nudged investors back towards safe-haven government bonds, but it has been the opposite story for most of the month.
German government bond yields were on track to end October with their biggest monthly rise since 2013, with sentiment fragile ahead of central bank meetings this week and following the euro zone’s economic and inflation data.
US Treasury yields, which hit five-month highs last week, were poised for the biggest monthly rise since February 2015, while for Britain’s gilts yields have risen almost 50 basis points, the biggest jump since January 2009. “Recent sharp falls in sterling’s value vis-‡-vis the euro and the US dollar could reduce confidence in sterling and eventually threaten its role as a global reserve currency,” said Standard and Poor’s, which reviewed the UK’s credit rating on Friday.
“We could lower the rating if we conclude that sterling will lose its status as a reserve currency.”
Asian stocks struggle
Asian traders moved cautiously yesterday as news that the FBI would further probe Clinton’s emails fuelled fresh uncertainty about the outcome of the US presidential election just eight days before the vote. Traders globally had broadly expected Democratic candidate and Wall Street favorite Clinton to sweep to victory, with her rival Donald Trump considered a loose cannon.
But FBI chief James Comey’s announcement that the bureau was again looking at her use of a private email server while secretary of state sent shudders through trading floors, with US stocks tumbling and the dollar taking a hit. The sell-off filtered through to Asia, where dealers are also nervously awaiting a series of key events this week, including central bank policy meetings in Japan and the US and the release of US jobs figures Friday. Trading conditions this week will be “slippery and shifty”, said Stephen Innes, senior trader at forex firm OANDA.
“The calendar is full of high-risk events making for a treacherous path to navigate in the lead-up the monumental November 8 US election,” he said in a note. Tokyo’s Nikkei ended 0.1 percent lower, Hong Kong shed 0.1 percent and Shanghai also closed 0.1 percent off, while Seoul slipped 0.6 percent and Taipei was 0.2 percent off. — Agencies