Dollar, Futures Slump; Gold Spikes Over $1,200 After Trump Disappoints Markets
London (Jan 12) Risk assets declined across the globe, with European, Asian shares and S&P 500 futures all falling, while the dollar slumped against most currencies after a news conference by President-elect Donald Trump disappointed investors with limited details of his economic-stimulus plans, and the Trumpflation/reflation trade was said to be unwinding.
"The risk was always that a president like Trump would end up upsetting that consensus (of faster U.S. growth, stronger dollar) view by introducing more political uncertainty," said asset manager GAM's head of multi-asset portfolios Larry Hatheway.
The biggest mover, and perhaps the key driver of risk since the election, was the dollar which tumbled as much as 0.8%, falling below its 50DMA for the first time since the election, and back to where it was during the December 14 Fed rate hike announcement, while Treasuries gained alongside commodities, as Donald Trump’s press conference sent a wake-up call to the market about exalted expectations for fiscal stimulus in the U.S.
"Overall, investors are wary ahead of Trump's inauguration – a case of buy the talk (Trumpflation), but sell the news," analysts at Societe Generale said in a note.
However while negative for the US, that Trump did not mention possible tariffs against Chinese exports, was a relief for Asian share markets that have feared the outbreak of a global trade war.
The lack of detail about a potential stimulus also put safety plays such as bonds and gold back in favor, cooling bets that have built in recent months on significantly higher global inflation and series of U.S. interest rate hikes. It was enough to send the dollar tumbling back below 114 yen for the first time in five weeks and brought some welcome relief to Brexit-bruised sterling and Turkey's lira, which has been badly beaten up this year. The USD/JPY broke below the prior session low of 114.25 to reach its weakest level in a month as broad assets position adjustments after recent rally continues to lower the pair’s range, said Satoshi Okagawa, senior global market analyst at Sumitomo Mitsui Banking Corp. in Singapore. Eventually the pair slid as low as 113.77 shortly after the European open before rebounding to just above 114.
The euro was back at $1.0650 for the first time in a month, shaky sterling climbed above $1.22 and Sweden's crown hit a four-month high and cracked its 200-day moving average against the euro after pacy inflation data. It was also bliss for bond markets that have been in reverse since Trump's election fuel led bets on higher U.S. interest rates that tend to set the bar for global borrowing costs.
Gold spiked on the weak dollar, rising above $1,200 since November 23, and at the 38.2% Fibonacci of the Trump-Led slide.
With all eyes on the dollar, the U.S. currency slumped against most major and the 10-year Treasury yield touched the lowest since November as Trump’s first press conference since his election victory gave no details on policy.
European stocks headed for their lowest close since the end of 2016 and drugmakers across the globe sold off. Turkey’s currency climbed for the first time in six days as the nation’s central bank tightened lira liquidity. Gold advanced to a seven-week high and industrial metals rallied. The Stoxx Europe 600 Index lost 0.5 percent and the FTSE 100 fell 0.2 percent, halting a record streak of gains. Health-care shares headed for their biggest drop since November, deepening losses that began late yesterday.
As Bloomberg, and virtually everyone else has pointed out many times already, Trump’s press conference left investors with few specifics on the timing and scope of planned policies from infrastructure spending to trade pacts. Since his victory, the dollar and global equities have rallied, while bonds sold off, on bets inflation would pick up with growth. Health-care stocks were pressured Thursday as Trump said he’d force the pharmaceutical industry to bid for government business in the world’s largest drug market.
“Markets are disappointed by a lack of detail around the much touted stimulus plans,” said Michael McCarthy, Sydney-based chief market strategist at CMC Markets Plc. “There is a growing fear that recent positive moves are based on bombast, and could unravel very quickly.”
"The news conference was a far cry from the market friendly, pro-growth "presidential" comments that Trump delivered at his acceptance speech," wrote analysts at Westpac, adding it left a "veritable laundry list" of questions unanswered.
Futures on the S&P 500 Index fell 0.3 percent. The underlying gauge increased 0.3 percent on Wednesday, staging an afternoon rally and recouping losses of as much as 0.4 percent.
In rates, the benchmark 10-year Treasury yield fell five basis points to 2.32 percent, touching the lowest level since Nov. 30. German 10-year yields dropped three basis points to 0.29 percent, while those in the U.K. slid five basis points to 1.29 percent.
Source: ZeroHedge
