Trump trade doubts send dollar, shares
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[March 27, 2017]
By Jemima Kelly
LONDON (Reuters) - 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 tax cuts and
Trump's failure to rally enough support from his own Republican party 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=>.
So-called "Trumpflation trades" - bets that Trump's pro-business
policies would stoke growth and inflation in the U.S. and global
economies, boosting assets such as commodities - came under heavy
The dollar, whose index had surged more than 6 percent in the aftermath
of Trump's election to hit 14-year highs at the start of 2017, slipped
to its lowest since Nov. 11, two days after the results of the
presidential vote <.DXY>.
"Investors are viewing this setback as a broader loss of faith in the
Trump administrationís ability to deliver on other campaign pledges -
namely tax and spending policies, which have underpinned asset prices
since the U.S. elections," said ING currency strategist Viraj Patel, in
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 sharply,
as investors ditched riskier assets and unwound bets on higher inflation
and interest rates. [GVD/EUR]
The fall in risk appetite dominated European stockmarkets, with the
pan-European STOXX 600 index <.STOXX> falling 0.8 percent on the day.
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 1.3 percent.
And the depressed mood looked set to continue on Wall Street, with U.S.
stock index futures <ESc1> falling 1 percent to a six-week low.
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.
Gold prices climbed more than 1 percent to a one-month high of $1,259 an
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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 also gained as much as 0.8
percent to trade at its highest levels since Nov. 10.
The euro rose 0.7 percent to a 3-1/2-month high of $1.0874 <EUR=>.
"The markets are continuing to unwind the Trump premium," said BMO
Capital Markets currency strategist Stephen Gallo, in London. "We
probably are aiming for the (Nov. 8) pre-election lows...that's
probably a viable target."
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 Asia stocks are still broadly in
line with theirs despite a recent bounce.
"Any big pull back in markets would be an opportunity for long term
investment in a region where potential is still intact," said
Nicholas Yeo, head of China/Hong Kong equities at Aberdeen Asset
Management in Hong Kong, part of a team that manages $374 billion in
assets as of end-December 2016.
Japan's Nikkei <.N225>, though, fell 1.5 percent as the yen
rebounded in the face of renewed U.S. dollar weakness.
Following the defeat on U.S. healthcare legislation on Friday, 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.
(Additional reporting by Ritvik Carvalho in London and Saikat
Chatterjee in Hong Kong)
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