European stocks hit three-week low as
Trump reality sets in
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[January 23, 2017]
By Abhinav Ramnarayan
LONDON (Reuters) - European stocks and bond
yields dropped on Monday and the dollar hit a six-week low after U.S.
President Donald Trump began his term in office with a protectionist
speech that pushed a nervous market into safe-haven assets.
World stocks hit multi-year highs earlier this month on expectations
Trump would boost growth and inflation with extraordinary fiscal
However, his inaugural address on Friday saw investors retreat to the
safety of higher-rated government bonds as the new president signaled an
isolationist stance on trade and other issues.
He also made it clear that he plans to hold talks with the leaders of
Canada and Mexico to begin renegotiating the North American Free Trade
European stocks fell 0.7 percent and the broader Euro STOXX 600 fell 0.6
percent in early trades on Monday, both hitting their lowest level this
year so far.
Japan's Nikkei .N225 dropped 1.1 percent while shares in Australia
dropped 0.8 percent after Trump's administration also declared its
intention to withdraw from the Trans-Pacific Partnership (TPP), a
12-nation trade pact that Japan and Australia have both signed.
Other Asian shares were more resilient, however, in part due to the
dollar's weakness, and MSCI's broadest index of Asia-Pacific shares
outside Japan rose 0.3 percent.
"The focus this morning is on the protectionist rhetoric and the lack of
detail on economic stimulus, so it's a nervous start (to the
presidency)," said Investec economist Victoria Clarke.
"The other concern is how the Fed interprets Trump's stance, the worry
being the less he does on fiscal stimulus the more nervous they may get
on pushing the rate hikes through."
The U.S. Federal Reserve, which has indicated that it expects to raise
its benchmark interest rate three times this year, is due to hold its
next meeting on Jan. 31 and Feb. 1.
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People walk through the lobby of the London Stock Exchange in
London, Britain August 25, 2015. REUTERS/Suzanne Plunkett/File photo
Rabobank analyst Michael Avery said a more protectionist United
States could lead to a U.S. dollar liquidity squeeze, with Mexico
and Asia likely the most badly hit.
"We would see outright confusion over what currency to invoice,
trade, and borrow in: a 19th century world of competing reserve
currencies in different geographic zones, but without the
underpinning of gold," Avery said in a note.
The problem would be exacerbated if China tightens capital controls
further, he said.
The U.S. dollar fell 0.5 percent against a basket of six major
currencies and as much as 1 percent against the Japanese yen.
The nervous start on Monday saw safe haven assets in demand.
The yield on Germany's 10-year government bond, the benchmark for
the region, led most euro zone bonds lower, dropping 4 basis points
to 0.32 percent in early trade.
This followed 10-year U.S. Treasuries yields, which fell to 2.43
percent, after having risen briefly on Friday to 2.513 percent, its
highest since Jan. 3.
Spot gold prices, meanwhile, rose on Monday to their highest in two
(Additional reporting by Hideyuki Sano; Editing by Hugh Lawson)
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