Dollar unsettled, stocks subdued by Trump’s policy
SYDNEY: The dollar struggled in Asia on Tuesday as US President Donald Trump’s focus on protectionism ahead of fiscal stimulus fuelled suspicions his administration might be content to gain a competitive advantage through a weaker currency.
The talk of trade wars came even as more data pointed to a welcome revival in activity worldwide.
A survey of Japanese manufacturing out on Tuesday showed the fastest expansion in almost three years as export orders surged. Instead the uncertainty emanating from Washington kept Asian stocks subdued while aiding safe-haven Treasuries and the yen.
MSCI’s broadest index of AsiaPacific shares outside Japan edged up 0.4 per cent, while Shangahi was flat and the Nikkei slipped 0.4 per cent.
Spread betters pointed to a hesitant opening for European bourses while E-mini futures for the S&P 500 were a fraction softer.
Sentiment took an early knock when US Treasury Secretary nominee Steven Mnuchin told senators that he would work to combat currency manipulation but would not give a clear answer on whether he views China as manipulating its yuan.
In written answers to a Senate Finance Committee, Mnuchin also reportedly said an excessively strong dollar could be negative in the short -term.
The dollar duly skidded as far as 112.52, breaking last week’s trough and the lowest since late November, before steadying at 112.86.
Its 1.7 per cent loss on Monday was the largest since July 29.
Against a basket of currencies, the dollar index was down 0.1 per cent at 100.080, while the euro hopped up to $1.0756. Both were levels last seen in early December.
Sterling briefly hit a six-week peak at $1.2546 on speculation that Britain’s Supreme Court would rule on Tuesday that the government needs parliamentary approval to trigger formal Brexit talks.
While Trump promised huge cuts in taxes and regulations on Monday, he also formally withdrew from the Trans-Pacific Partnership (TPP) trade deal and talked of border tariffs.
“It’s interesting that markets did not respond positively to a reaffirmation of lower taxes and looser regulation, reinforcing the impression that all the good news is discounted for now,” wrote analysts at ANZ in a note.
“As week one in office gets underway, there is a growing sense of scepticism, not helped by the tone of Friday’s inaugural address and subsequent spat with the media.”
Doubts about exactly how much fiscal stimulus might be forthcoming helped Treasuries rally.
Yields on 10-year notes eased to 2.39 per cent, having enjoyed the steepest single-day drop since January 5 on Monday. Two-year yields were at 1.16 per cent, narrowing the dollar’s premium over the euro to 183 basis points from a recent top of 207 basis points.
Wall Street lost just a little of its recent gains. The Dow Jones fell 0.14 per cent, while the S&P 500.
SPX lost 0.27 per cent and Nasdaq 0.04 per cent.
Shares in Qualcomm Inc dived almost 13 per cent after it was sued by Apple on Friday. The drop in the dollar boosted industrial metals including copper and iron ore, while gold was near two-month high at $1,216.65 an ounce. the