Dollar dips, stocks fall as Trumpflation
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[November 21, 2016]
By Nigel Stephenson
LONDON (Reuters) - The dollar edged lower
against major currencies and global stocks were on the defensive on
Monday as a "Trumpflation"-fuelled rally paused and political risks came
to the fore in Europe.
U.S. Treasury yields, which have risen since Republican Donald Trump won
the U.S. presidential election on a platform seen likely to raise U.S.
growth and inflation and lead to higher interest rates, fell from 2016
highs hit on Friday.
The dollar fell 0.3 percent against a basket of six peers <.DXY> but
still held close to its highest levels since early 2003. The Japanese
yen rose 0.3 percent to as high as 110.51 per dollar <JPY=>, having
earlier fallen to 111.19 yen, its weakest since early June.
The euro <EUR=> rose 0.5 percent to $1.0649, with analysts saying the
move reflected the abundant political risks facing Europe over the
A surprisingly strong showing by conservative former premier Francois
Fillon in a weekend French presidential primary was expected to heighten
uncertainty. Some suggested that his unpopularity among left-wing voters
could raise far-right, anti-euro leader Marine Le Pen's chance of
victory in an election to be held in April and May.
However, German Chancellor Angela Merkel's announcement on Sunday that
she would seek a fourth term in next September's election removed
another source of political uncertainty, which has intensified since
Britain's vote in June to leave the European Union and Trump's election
on Nov. 8.
Yields on lower-rated euro zone government bonds rose while those on
German benchmarks edged lower.
In Italy, which faces a referendum on which Prime Minister Matteo Renzi
has staked his job, 10-year yields <IT10YT=TWEB> rose 2.4 basis points
to 2.05 percent, while German equivalents <DE10YT=TWEB> dipped 0.3 bps
to 0.28 percent.
"Indirectly, the French primary vote could reinforce concern about an
anti-establishment backlash in Europe," said Martin Van Vliet, senior
rates strategist at ING. "Even if the sell-off in core bonds is fading,
we still see pressure on the periphery."
European shares fell, following most Asian markets lower. The
pan-European STOXX 600 index <.STOXX> lost 0.7 percent.
MSCI's main Asia-Pacific, excluding Japan, stock index <.MIAPJ0000PUS>
fell 0.1 percent and Australia's S&P/ASX200 index <.AXJO> retreated 0.2
Japanese shares closed up 0.8 percent <.N225>, lifted by yen weakness
against the dollar before the currency turned.
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People walk past an electronic board showing Japan's Nikkei average
outside a brokerage in Tokyo, Japan, November 16, 2016. REUTERS/Toru
"The markets driven by Trump may be just about to have run their
course for now," said Toru Ohara, chief investment officer at Okasan
"A rise in interest rates is, generally speaking, not good thing for
stocks, especially for emerging markets. But if you think that U.S.
bond yields, which have been falling since 1982, may be bottoming
out, that could mean the end of a low-growth/ low-inflation regime,"
Oil prices rose on expectations that producers in the Organization
of the Petroleum Exporting Countries will agree later this month to
"I think there will be some kind of agreement next week," said Matt
Stanley, a fuel broker at Freight Investor Services in Dubai,
although he added that a post-agreement rally would be unlikely to
last as any cut would probably not be big enough to bring oil
production back in line with consumption.
Brent crude <LCOxc1> last traded at $47.34 a barrel, up 48 cents, or
Copper prices, which have risen on Trump's promise to spend heavily
on infrastructure, were up 2.5 percent <CMCU3> at $5,560 a tonne on
the prospect of better demand in top consumer China and a smaller
growth in supply.
(Additional reporting by Hideyuki Sano in Tokyo, Henning Gloystein
in Singaport and Dhara Ranasinghe, and Abhinav Ramnarayan in London;
editing by Mark Heinrich)
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