Washington – Trump Slump: Dollar, Shares Skid On Reflation Trade Doubts

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    FILE - Employees of a foreign exchange trading company work near monitors showing U.S. President Donald Trump (top C) and the Japanese yen's exchange rate against the U.S. dollar in Tokyo, Japan, January 23, 2017.    REUTERS/Toru Hanai Washington – The dollar and share prices tumbled on Monday, as investors worried that U.S. President Donald Trump’s defeat over healthcare reform foreshadowed difficulties delivering other key campaign promises, in particular fiscal stimulus.

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    Trump’s failure to rally enough support from his own Republican party – which controls both houses of U.S. Congress – to repeal and replace Obamacare spurred a rush to safe haven assets such as gold XAU=, the Japanese yen JPY= and the Swiss franc CHF=.

    Bets that pro-business policies promised by Trump would boost growth and consumer price rises after years of very low inflation, leading to a faster pace of U.S. interest rate rises, took stocks to record highs earlier this year and the dollar to its highest levels in 14 years.

    But those “reflation trades” have since come under selling pressure as Trump has concentrated his efforts on areas other than economic reform, and that selling intensified after the healthcare bill’s failure late on Friday.

    The dollar index .DXY slipped below 99.0, its lowest since Nov. 11, two days after the results of the presidential vote.

    Shares on Wall Street looked set to follow Europe and Asia downwards, with U.S. stock index futures ESc1 falling as much as 1 percent to a six-week low.

    “A tidal wave of risk aversion has flooded the financial markets, … with global stocks under intense selling pressure after Donald Trump’s failure on healthcare reforms sparked concerns about his ability to move ahead with tax cuts and fiscal spending,” said FXTM analyst Lukman Otunuga.

    Safe-haven U.S. Treasury yields US10YT=RR fell to a one-month low of 2.35 percent, while borrowing costs across the euro zone also fell, as investors ditched riskier assets and unwound bets on higher inflation and interest rates.

    Analysts said bets that the European Central Bank could look to tighten monetary policy sooner rather than later were being scaled back.

    RISK AVERSION

    The fall in risk appetite dominated European stockmarkets, with the pan-European STOXX 600 index – which has risen around 10 percent since Trump was elected – falling around half a percent on the day. [.EU]

    The Basic Resources index .SXPP was the biggest sectoral loser, down 2 percent to a two-week low as copper prices slipped, while the banking index .SX7P was down 1.2 percent.

    For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

    Fresh off its healthcare bill defeat, the White House warned rebellious conservative lawmakers on Sunday that they should get behind Trump’s agenda or he may bypass them on future legislative fights, including tax reform.

    “It needs to be seen if (the healthcare defeat) will result in a ‘correction’ or if traders are willing to hold out and see if Trump will have more success with his next bill,” Markus Huber, a trader at City of London Markets, said.

    Bucking the weaker trend among European stocks were precious metal miners such as Randgold (RRS.L) and Fresnillo (FRES.L), both up more than 1 percent, as risk aversion boosted gold, traditionally used as a safe haven at times of market angst.

    Gold prices climbed more than 1 percent to a one-month high of $1,259 an ounce.

    The safe-haven yen also gained more than 1 percent against the greenback, touching 110.12 yen per dollar, its strongest since mid-November, while the Swiss franc gained as much as 0.8 percent to trade at its highest levels since Nov. 10.

    The euro rose 0.8 percent to a 4-1/2-month high of $1.0882 EUR=.

    In Asian trading, falls in stock prices were more moderate, with MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS down 0.1 percent after posting its first weekly decline last week in three weeks.

    In terms of relative valuations, U.S. stocks are trading well above their historical averages while Asian stocks are still broadly in line with theirs despite a recent bounce.

    Japan’s Nikkei .N225, though, fell 1.5 percent as the yen rebounded in the face of renewed U.S. dollar weakness.

    Oil fell further towards $50 a barrel, pressured by uncertainty over whether an OPEC-led production cut will be extended beyond June in an effort to counter a glut of crude.


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    3 Comments
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    qazxc
    qazxc
    7 years ago

    Here it comes…… place your bets, ladies and gents, step right up and place your bets…

    Who will the Trumpanzees blame for this …. will it be the Democrats in Congress? Will it be the Deep State? Will it be the ‘moderate’ Republicans? Will it be Obama? Or that old reliable lying media?

    gimmeabreak
    gimmeabreak
    7 years ago

    The stock market is finally realizing all of the damage that Obama did and so it’s going down. Don’t worry, though. Trump will fix it. He’s the only one who can.