Dollar steadies ahead of Fed, stocks rise
World stocks made their first gain in five days yesterday as the dollar steadied from turbulence after the Trump administration accused Germany, Japan and China of devaluing their currencies to gain a trade advantage. The US currency suffered its worst January in three decades after President Donald Trump complained that every “other country lives on devaluation”.
Bargain hunters nudged the dollar up 0.15 percent in Asian and European trading, reassuring themselves that the Federal Reserve should signal later that it still plans to raise US interest rates a number of times this year. Healthy results from a slew of Europe’s bluechips also bolstered the mood, lifting its main bourses 0.8 percent and snapping a four-day losing streak for MSCI’s 46-country All World index. Markets remained jittery however. Trump’s top trade adviser had also said on Tuesday that Germany was using a “grossly undervalued” euro to exploit its trading partners. The accusations drew rebuttals from German and Japanese officials, but looked likely to run for some time.
“The issue is at what point do investors get concerned that the potential negative shock effects from trade, immigration and geopolitics overwhelm the positives (of potential U.S. stimulus),” said Bluebay asset management head of Credit Strategy David Riley. There was little reaction to a raft of European data. Sterling barely budged after data showed its fall since June’s UK Brexit vote had stoked the sharpest rise in factory costs on record but had offered little boost to exports. Eurozone factories meanwhile started 2017 by ramping up activity at the fastest rate for nearly six years.
“Optimism about the year ahead has risen to the highest since the region’s debt crisis,” Chris Williamson, chief business economist at the data’s provider IHS Markit, noting that inflation was also picking up. Overnight in Asia, Japanese investors seemed relieved the yen’s 0.5 percent rise against the dollar had not been larger. They nudged the Nikkei up 0.5 percent and MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.1 percent in a largely quiet session. Spread betters were also tipping a modest early bounce for Wall Street’s S&P 500 and Dow Jones and a slightly better one for the tech-heavy Nasdaq after Apple reported a strong revival in iPhone sales.
Fed on hold
Chinese markets were still on holiday but surveys from the Asian giant showed manufacturing and services activity continued to expand in January. Exports from tech bellwether South Korea also grew at the fastest pace in almost five years, another sign the global economy had been on the mend before all the talk of US protectionism darkened the air. Investors’ hopes for a fiscal boost to the world’s largest economy under Trump have been tempered by controversial and protectionist policies that have seen him suspend travel to the United States from seven Muslim-majority countries. The policy uncertainty only added to expectations the US Federal Reserve will keep interest rates steady when it concludes a two-day meeting later.
Tokyo shares closed higher yesterday on bargain-hunting after two days of losses and as a rise in the value of the yen fizzled. The Nikkei tumbled on Monday and Tuesday with investors around the world spooked by US President Donald Trump’s flurry of executive orders that have fuelled worries about the outlook for the global economy. —Agencies