Trump, Brexit uncertainty hit stocks and dollar, gold jumps

[January 17, 2017]  By Nigel Stephenson

LONDON (Reuters) - Stocks, bond yields and the dollar fell on Tuesday, while gold rose as investors drew in their horns in response to comments on the dollar from U.S. President-elect Donald Trump and ahead of a speech on Brexit from British Prime Minister Theresa May.

Trump's remarks that the dollar is too strong and hurting U.S. competitiveness pushed the greenback down across the board, even against sterling, which is under heavy pressure as May is expected to confirm her "hard Brexit" stance later on Tuesday.

Britain's pound was higher on the day but still close to Monday's three-month lows, while the Japanese yen hit a six-week high as investors sought shelter from the mounting political risk of a week that also includes Trump's inauguration.

Investors are seeking clarity on his policies after campaign pledges on tax cuts and government spending helped lift stocks and the dollar and were deemed positive for economic growth.

In remarks to the Wall Street Journal published on its website late on Monday, however, Trump said U.S. companies could not compete with China "because our currency is too strong. And it's killing us".

Safe-haven investments such as gold and government debt also gained.

"Sterling is trading higher ahead of Theresa May's speech on Brexit but we're expecting a wild ride for the pound today," said Neil Wilson, senior market analyst at ETX Capital.

"These gains are largely down to dollar weakness, however, and gold has risen amid a bid for safer assets ahead of this speech and Donald Trump's inauguration on Friday."

The dollar was down a third of 1 percent against a basket of currencies <.DXY>, and down 1 percent against the Japanese yen to a six-week low of 113.04 <JPY=>.

The euro was up 0.6 percent at $1.0665 <EUR=>, while sterling rebounded 1 percent to $1.2160 <GBP=D4>. The prospect of Britain losing access to the single market drove sterling as low as $1.1983 on Monday, its weakest, barring an Oct. 7 "flash crash", for more than three decades.

Prime Minister May speaks at 1145 GMT and is expected to say Britain will not seek a "half in, half out" deal when it leaves the European Union. She will set out 12 priorities for talks with the EU, her office said, and media reports said these would include an indication she is prepared for Britain to leave the bloc's single market.

"We have taken back all of the move from yesterday morning. The speech has been so well telegraphed that I think people (betting against sterling) realize that is dangerous," said Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London.

Women, dressed in ceremonial kimonos, stand in front of an electronic board showing stock prices after the New Year opening ceremony at the Tokyo Stock Exchange (TSE), held to wish for the success of Japan's stock market, in Tokyo, Japan, January 4, 2017. REUTERS/Kim Kyung-Hoon

GOLD SHINES

European shares fell in early trade. The pan-European STOXX 600 index <.STOXX> was down 0.4 percent, led lower by basic resources stocks and adding to Monday's 0.8 percent losses.

In Asia, Japan's Nikkei <.N225> closed down 1.5 percent at its lowest in nearly a month. MSCI's benchmark index of global stocks <.MIWD00000PUS> fell 0.2 percent.

U.S. stock index futures <ESc1> <1YMc1> were down, an indication Wall Street would open lower. U.S. markets were closed on Monday for the Martin Luther King Day holiday.

Yields on U.S. Treasuries, regarded as among the world's safest investments, fell too. Ten-year yields <US10YT=RR> dropped 5.1 basis points to 2.33 percent. German equivalents, the benchmark for euro zone borrowing costs, fell 4 bps to 0.22 percent.

Gold hit its highest in more than seven weeks, and was last trading at $1,213 an ounce, up almost 1 percent on the day <XAU=>. It has now risen for seven consecutive days.

"Gold is going to do very well in the first half of the year due to Brexit concerns, Chinese currency pressure and uncertainty surrounding Donald Trump's policies," said Richard Xu, fund manager at China's biggest gold exchange-traded fund, HuaAn Gold.

Copper <CMCU3> fell for a second successive day, having been under pressure around the turn of the year from a strong dollar. The metal stood at $5,785 a tonne, down 1.4 percent on the day.

Oil prices edged higher. Brent crude <LCOc1>, the international benchmark, rose 7 cents a barrel to $55.93.

(Additional reporting by Shinichi Saoshiro in Tokyo, Nallur Sethuraman in Bengaluru, and Patrick Graham in London; Editing by Catherine Evans)

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