Dol­lar, yields, stocks all cool their jets

Kuwait Times - - BUSINESS -

LON­DON: Stocks, the dol­lar and bond yields all drifted lower yes­ter­day as in­vestors cashed in on some of their re­cent bets that the an­tic­i­pated fis­cal boost from the in­com­ing Trump ad­min­is­tra­tion will sup­port riskier as­sets at the ex­pense of bonds. Wall Street hit record highs and the dol­lar rose to a 14-year peak last week, tempt­ing in­vestors to cash in and book some pre-hol­i­day profit as the last full trad­ing week of the year got un­der­way.

The Ja­panese yen bounced back strongly from last week’s maul­ing, helped by strong Ja­panese ex­port data, as the Bank of Ja­pan be­gan a two-day pol­icy meet­ing at which it is widely ex­pected to keep rates on hold. Bank stocks were among the big­gest fall­ers in Europe following two weeks of strong gains on the back of ris­ing bond yields. Their de­cline pushed the broader in­dices into the red, while Asian stocks slipped to a four-week low.

In­vestors are sit­ting tight as they watch for the out­come of the Bank of Ja­pan’s fi­nal mon­e­tary pol­icy meet­ing of the year, which wraps up to­day. Cen­tral bankers may re­vise their out­look for Asia’s se­cond big­gest econ­omy based on re­cent data, in­clud­ing im­port and ex­port fig­ures re­leased yes­ter­day that showed a sur­plus for the third month in a row.

Europe’s in­dex of lead­ing 300 shares re­treated from Fri­day’s 11-month high and was down 0.1 per­cent, while banks were down 0.9 per­cent. Shares in Italy’s Monte dei Paschi fell 9 per­cent as it made a last-ditch at­tempt to raise 5 bil­lion euros by year-end and avoid a state bailout.

Ger­many’s DAX and France’s CAC were down 0.1 and 0.2 per­cent, re­spec­tively, while Bri­tain’s FTSE 100 was up 0.1 per­cent. and US stock fu­tures pointed to a slightly higher open on Wall Street. “The Trump rally has stalled a lit­tle in re­cent ses­sions but so far, I’m see­ing few signs that we’re go­ing to see the year out on a neg­a­tive note,” said Craig Er­lam, se­nior mar­ket an­a­lyst at OANDA. “Of course, in very quiet pe­ri­ods such as this, these things can of­ten be in­creas­ingly dif­fi­cult to pre­dict,” he said.

MSCI’s broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan fell for the third straight day, shed­ding 0.3 per­cent to a four-week low. It has lost 3.7 per­cent since Trump was elected. In ad­di­tion, in­vestors turned cau­tious af­ter China’s top lead­ers said over the week­end they would stem as­set bub­bles in 2017 and place greater im­por­tance on the pre­ven­tion of fi­nan­cial risk. Ja­pan’s Nikkei, which has ben­e­fited from the yen’s sharp fall against the dol­lar, snapped its nine-day win­ning streak, dip­ping 0.1 per­cent from Fri­day’s one-year high. Fi­nan­cial mar­kets briefly turned “riskoff” in late US trade on Fri­day following news that a Chi­nese Navy war­ship had seized a US un­der­wa­ter drone in in­ter­na­tional wa­ters in the South China Sea.

The diplo­matic in­ci­dent ap­pears to have been re­solved for now af­ter the two coun­tries said on Satur­day that China would re­turn the drone.

MR FOREX, MR BOND

In bonds the 10-year US Trea­suries yield stood at 2.58 per­cent in Europe on Mon­day, down al­most two ba­sis points on the day but still close to its two-year high of 2.641 per­cent touched on Thurs­day.

It has risen al­most 100 ba­sis points from the low in the hours im­me­di­ately af­ter the Nov 8 US elec­tion. That surge, and the Fed­eral Re­serve’s in­ter­est rate hike last week, have pushed the dol­lar sharply higher of late.

The dol­lar’s in­dex against a tradeweighted bas­ket of six ma­jor cur­ren­cies jumped to a 14-year high of 103.56 last week al­though it gave up some gains yes­ter­day. The in­dex last stood at 102.93.

The euro traded at $1.0435, its bounce back from last week’s 14-year low of $1.03665 helped by sur­pris­ingly strong Ger­man busi­ness morale data, while the dol­lar fell 0.6 per­cent against the yen to 117.30 yen.

“The dol­lar is act­ing as a brake on the ex­tent of Fed tight­en­ing and the ex­tent of the bond sell-off,” So­ci­ete Gen­erale cur­rency an­a­lysts wrote yes­ter­day. “Mr Forex is hy­per-sen­si­tive to these bouts of self­doubt by Mr Bond, and the dol­lar has backed off a lit­tle on this Mon­day morn­ing,” they said. At its two-day pol­icy meet­ing the BOJ is widely ex­pected to hold pol­icy, in­clud­ing its twin tar­gets of mi­nus 0.10 per­cent in­ter­est on a part of ex­cess re­serves and the zero per­cent 10-year gov­ern­ment bond yield.

Ja­pan’s bench­mark Nikkei 225 in­dex slipped 0.1 per­cent to end at 19,391.60 while South Korea’s Kospi edged 0.2 per­cent lower to 2,038.39. Hong Kong’s Hang Seng shed 0.9 per­cent to 21,832.68 and the Shang­hai Com­pos­ite in­dex dipped 0.2 per­cent to 3,118.08. Aus­tralia’s S&P/ASX 200 rose 0.5 per­cent to 5,562.10. — Agen­cies

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