Markets up but Trump fears remain
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 have taken a hit over worries Mr 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 0.5pc higher and Bangkok added 0.2pc.
There were also gains of 0.7pc in Singapore and a 0.5pc rise in Wellington while Hong Kong gained 0.5pc.
However, Tokyo was marginally lower, having surged more than 8pc to a nine-month high since November 10 on the back of a rally in the dollar against the yen.
Shanghai was off 0.1pc, while Sydney and Seoul each shed 0.4pc.
“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, said.
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 tomorrow 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.”
The dollar sank against higheryielding currencies, with the South Korean won, Australian dollar, Thai baht and New Zealand dollar all well up. The euro also rose after hitting an 11-month low of $1.0709.
And Mexico’s peso was 2pc higher, having hit record lows on worries about Mr Trump’s warning he will tear up a trade deal with the country.
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.
Oil prices surged on renewed hopes that OPEC can reach a deal to cap output before it holds its twiceyearly meeting this month.
Oil has come under pressure on worries the OPEC deal would fall apart and on a stronger dollar, which makes it more expensive for holders of other currencies.