Global stocks flat as focus slowly shifts from Trump
Global stock markets traded in fairly narrow ranges yesterday as investors slowly turned their focus away from what Presidentelect Donald Trump will do in office to more fundamental drivers, such as whether the Federal Reserve will raise interest rates next month.
In Europe, Britain’s FTSE 100 index of leading British shares was up 0.6 percent at 6,791 while Germany’s DAX fell 0.1 percent to 10,687. The CAC-40 in France was 0.2 percent higher at 4,517. U.S. stocks were poised for a steady opening, with Dow futures and the broader S&P 500 futures down 0.1 percent.
The focus in markets in the past few sessions has been on the upcoming Trump presidency, which will begin on Jan 20. Analysts say his promises of tax cuts and higher infrastructure spending could boost economic growth but also spur inflation. That’s seen a rally in stocks, a selloff of US bond yields and a concurrent rise in the dollar. His threats of sanctions against China and other trading partners that he accuses of acting unfairly have rattled trade-dependent Asian economies, in particular.
Yesterday, attention was turning onto other factors. Any shortfall from the anticipated 0.6 percent monthly rise in retail sector could jolt confidence over the state of the US economy going into the transition period from one president to another. Whether it will dent speculation of an interest rate increase from the Federal Reserve in December is another matter. Comments from a raft of Fed policymakers, including Vice Chair Stanley Fischer, will be digested in that context.
“For what feels like the first time in a long time, fundamentals get a look in today after the overriding dominance of political markets drivers,” said Fiona Cincotta, market analyst at City Index. That focus on more fundamental factors appeared to be impacting on currency markets, too. The dollar, which has been one of the main beneficiaries from Trump’s victory last week, was relatively flat. The euro was unchanged at $1.0767 while the dollar rose 0.4 percent to 108.27 yen. “Risks are elevated, and we are expecting further increases in volatility as markets attempt to second-guess the policies that might eventually come out from the US,” Michael McCarthy, chief market strategist at CMC Markets in Sydney, told Bloomberg News.
Fed in focus
The dollar dipped back from a fivemonth high of 108.54 yen, but traders suggested it could test the 110 yen mark as soon as this week, with eyes on Fed chief Janet Yellen’s congressional testimony later this week. The central bank is widely expected to hike borrowing costs next month but her remarks Thursday will be pored over for clues about its plans for next year. “By all accounts, there appears no stopping the US dollar’s recent ascent based on the current interest rate trajectory,” Stephen Innes, senior trader at OANDA, said in a note. And Takuya Kanda, a senior researcher at Gaitame.com Research Institute said: “The dollar is currently rallying on expectations only. But the policies Trump has called for are all dollar-positive. After pausing around 107 to 108, the dollar will resume its uptrend toward 110 yen by year-end.”
Asian emerging markets up
Most Asian emerging markets rose yesterday after the previous day’s heavy losses while the dollar dipped against most peers but traders remained on edge over Donald Trump’s plans for global trade agreements. While shares in developed economies have rallied and safe-haven sovereign debt prices have fallen, many trading floors in Asia have taken a hit recently over worries Trump will throw up tariffs to the world’s biggest economy. His plans for huge spending and tax cuts at home have also fanned expectations the Federal Reserve will hike interest rates more sharply than initially planned, sending the dollar soaring and fuelling an exodus from emerging markets.
However, after a two-day retreat on most regional bourses, there was a tentative recovery with Manila up 0.3 percent, Jakarta 0.5 percent higher and Bangkok added 0.2 percent.
There were also gains of 0.7 percent in Singapore and a 0.5 percent rise in Wellington while Hong Kong gained 0.5 percent. However, Tokyo was marginally lower, having surged more than eight percent to a nine-month high since Thursday on the back of a rally in the dollar against the yen. Shanghai was off 0.1 percent, while Sydney and Seoul each shed 0.4 percent. The dollar sank against higher-yielding currencies, with the South Korean won, Australian dollar, Thai baht and New Zealand dollar all well up. The euro rose after hitting an 11-month low of $1.0709 on Monday.
And Mexico’s peso was two percent higher, having hit record lows this week on worries about Trump’s warning he will tear up a trade deal with the country and send back millions of migrants.
However, China weakened its yuan fix to the dollar to an eight-year low. Bets on a sharper rise in US rates have sent bond yields soaring in the US and Australia as traders shift out of them because sovereign debt usually offers lower rates of interest. Prices and yields move inversely from each other. Australian debt yields are at their highest since April, according to Bloomberg News. — Agencies