Trump, Brexit uncertainty hit stocks and dollar; gold jumps

Reuters London | Updated on January 12, 2018 Published on January 17, 2017

British Prime Minister Theresa May. (file photo)

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 US 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 US 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 US 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 per cent against a basket of currencies, and down 1 per cent against the Japanese yen to a six-week low of 113.04.

The euro was up 0.6 per cent at $1.0665, while sterling rebounded 1 per cent to $1.2160. The prospect of Britain losing access to the single market drove sterling as low as $1.1983 on Monday, its weakest, barring an October 7 “flashcrash", 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) realise that is dangerous,” said Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London.

Gold shines

European shares fell in early trade. The pan-European STOXX600 index was down 0.4 per cent, led lower by basic resources stocks and adding to Monday’s 0.8 per cent losses.

In Asia, Japan’s Nikkei closed down 1.5 per cent at its lowest in nearly a month. MSCI’s benchmark index of global stocks fell 0.2 per cent.

US stock index futures were down, an indication Wall Street would open lower.

US markets were closed on Monday for the Martin Luther King Day holiday.

Yields on US Treasuries, regarded as among the world’s safest investments, fell too. Ten-year yields dropped 5.1 basis points to 2.33 per cent. German equivalents,the benchmark for euro zone borrowing costs, fell 4 bps to 0.22 per cent.

Gold hit its highest in more than seven weeks, and was last trading at $1,213 an ounce, up almost 1 per cent on the day. 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 RichardXu, fund manager at China's biggest gold exchange-traded fund,HuaAn Gold.

Copper 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 per cent on the day.

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

Published on January 17, 2017
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