Trump-fu­elled risk rally shifts to Ja­panese bonds, euro

Kuwait Times - - BUSINESS -

LON­DON: In­vestors re­sumed the post-US elec­tion trade of sell­ing bonds and buy­ing stocks yes­ter­day after a pause ear­lier this week, al­beit less ag­gres­sively, with Ja­pan’s 10-year bond yield hit­ting its high­est since Fe­bru­ary. The dol­lar was in de­mand again too, ris­ing to a one year-high against a bas­ket of cur­ren­cies as the euro hit a ninemonth low of $1.07, and to an eight-year peak against the China’s yuan. US Pres­i­dent-elect Trump’s plans to cut taxes and boost in­fra­struc­ture spend­ing would boost eco­nomic ac­tiv­ity while his pro­pos­als to de­port il­le­gal im­mi­grants and im­pose tar­iffs on cheap im­ports are seen driv­ing in­fla­tion higher. That prospect has given rise to ex­pec­ta­tions that US in­ter­est rates will rise faster than pre­vi­ously an­tic­i­pated, boost­ing the dol­lar.

As the Bank for In­ter­na­tional Set­tle­ments warned on Tues­day, a stronger dol­lar poses risks for global mar­kets. But for now, in­vestors are en­joy­ing the ride, mean­ing stocks and the dol­lar are in fa­vor at the ex­pense of bonds. “With 10-year Ja­panese yields briefly edg­ing back above zero, the mar­ket will at some stage fo­cus on whether the Bank of Ja­pan will de­fend the zero level, es­pe­cially if the global yield sell-off gath­ers pace over the com­ing weeks and months,” Deutsche Bank’s Jim Reid said in a note yes­ter­day. The BOJ an­nounced in Septem­ber it would cap the bench­mark 10-year yield at zero as part of its long-stand­ing bat­tle against de­fla­tion and anaemic growth.

“It would be a strange de­ci­sion to aban­don the new pol­icy so soon after an­nounc­ing it, so as­sum­ing global yields re­main el­e­vated they may be forced to buy more (bonds) than they thought when the new scheme was an­nounced,” Reid said. Ja­pan’s 10-year yield rose to 0.03 per­cent, a ninemonth high. Com­pa­ra­ble US Trea­sury yields rose 3 ba­sis points to 2.27 per­cent, edg­ing back up to­ward Mon­day’s 11-month high of 2.302 per­cent and up from around 1.86 per­cent be­fore the elec­tion. US in­ter­est rate fu­tures are pric­ing in an 85 per­cent chance of a rate hike in De­cem­ber, com­pared to 75 per­cent be­fore the elec­tion.

Dol­lar rises again

In cur­rency mar­ket trad­ing yes­ter­day, the dol­lar rose 0.3 per­cent against the yen to a five-month high of 109.62 yen and a oneyear high of 100.32 on an in­dex ba­sis. Sharp gains in US bond yields have drawn in­vestors to the dol­lar, and the dol­lar in­dex is just 0.5 per­cent away from its high­est level in more than 13-1/2 years. The yuan weak­ened to 6.8703 to the dol­lar, its low­est level since De­cem­ber 2008. “The nar­ra­tive on the dol­lar is strong,” said Si­mon Smith, chief econ­o­mist at Fxpro. “A move higher in in­ter­est rates next month is now a near dead cert, with the im­plied path for rates next year also mov­ing higher and pro­vid­ing fur­ther sup­port for the dol­lar.” In eq­ui­ties, the FTS Euro First in­dex of lead­ing 300 European shares fol­lowed Wall Street’s lead from the pre­vi­ous day and was up 0.2 per­cent, un­der­pinned by com­mod­ity-re­lated stocks.

A 5 per­cent fall in Bayer, how­ever, weighed on Ger­many’s DAX, which fell 0.2 per­cent. The drug­maker fell after a place­ment of 4 bil­lion eu­ros of manda­tory con­vert­ible notes. MSCI’s broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan rose 0.2 per­cent, bounc­ing back from a four-month low touched ear­lier this week, while the yen’s slide to­ward 110 per dol­lar helped lift Ja­pan’s Nikkei by 1.1 per­cent.

The dol­lar’s strength has fanned fears in­vestors could shift funds to the United States from emerg­ing mar­kets. Emerg­ing mar­ket stocks, which had fallen 7 per­cent in the four ses­sions to Mon­day, also ex­tended gains for a sec­ond day yes­ter­day.

On Wall Street, the Dow Jones in­dus­trial av­er­age rose 0.29 per­cent to a record clos­ing high while the S&P 500 gained 0.75 per­cent. Since Trump’s un­ex­pected vic­tory last week, US shares have ral­lied while US bond prices tum­bled, push­ing up their yields sharply. In com­modi­ties gold was steady at $1,228 per ounce, not far from a 5 1/2month low of $1,211.8 seen on Mon­day, while an oil in­dus­try re­port that showed an un­ex­pected build in US crude stocks helped take this week’s shine off oil prices. Brent fu­tures, the global bench­mark, fell 0.8 per­cent to $46.55 per bar­rel.

TOKYO: Peo­ple walk past an elec­tronic stock in­di­ca­tor of a se­cu­ri­ties firm in Tokyo yes­ter­day. Asian stock mar­kets were mostly higher yes­ter­day, track­ing overnight gains on Wall Street, as in­vestors awaited more pol­icy de­tails from US pres­i­dent-elect Don­ald Trump.

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.