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Dollar, equities slide as Trump trade shows cracks

Mar 27 2017 15:53
Bloomberg: Eddie van der Walt

London - US stocks fell with the dollar, while Treasuries rallied as investor doubts grew that US President Donald Trump will be able to implement his economic agenda. The yen gained with gold on haven demand.

The S&P 500 Index slid to the lowest level in six weeks as the Republicans’  failure to pass a health-care bill raised the specter that promised pro-growth policies may be delayed.

The greenback was on the verge of erasing the rally spurred by Trump’s election victory, while Treasury 10-year yields fell to 2.35% with health-care reform Friday. European shares slumped. Oil slipped and iron ore futures paced losses in raw materials.

Trump’s inability to push through his flagship health-care bill has derailed investor hopes that his pro-business agenda - featuring tax cuts and regulatory changes - will enjoy a smooth passage through Congress. Reflation trades sparked by his election are faltering, with the dollar retreating and the S&P 500 Index headed for its worst month since October.

“Trump’s failure to get the health care bill through a Republican majority led Congress has raised some concerns about the President’s ability to implement his agenda of cutting taxes and raising infrastructure spending,”  Ole Hansen, chief commodity strategist at Saxo Bank, said by email.

“Failure would deflate further the months-long rally in stocks while reducing the need for further Fed action. The result of this has seen the dollar, stocks and bond yields lower which are all good news for investors looking for gold as an alternative.”

Here are this week’s key events:

UK Prime Minister Theresa May will on Wednesday formally trigger the start of two years of Brexit negotiations with a letter announcing Britain’s planned withdrawal from the European Union. Proposals to design and build Trump’s promised 2 000-mile border wall between the US and Mexico are due March 29.

The US Commerce Department will probably report that purchases rose in February at the same pace as a month earlier, indicating consumer spending is cooling in the first quarter. 

Chicago Fed President Charles Evans, who is a voter this year, speaks on economic conditions and monetary policy at an event in Madrid on Monday. Dallas Fed President Robert Kaplan, also a voter, is scheduled to speak on Monday at Texas A&M University.

Hungary, Mexico, South Africa and Thailand are among countries setting interest rates. Samsung Electronics will introduce its Galaxy S8 smartphone, the company’s first new mobile phone since the debacle with the Note 7 battery fires that led to its recall.

Here are the main moves in markets:

Stocks

The S&P 500 dropped 0.9% to 2 323.14 at 14:31. The index fell 1.4% last week and has given up all the gains since Trump said in February that he’d unveil a “phenomenal” tax plan. The Stocks Europe 600 Index retreated 0.8% as it was dragged down by miners and banks. The MSCI Emerging Market Index dropped 0.4%.

Currencies

The Bloomberg Dollar Spot Index fell 0.6%. The yen rose 1.1% to ¥110.14/$.  The euro gained 0.8% to $1.0887, a four-month high, after Angela Merkel’s election victory in Saarland state delivered a reality check in this year’s contest for the German chancellery. The British pound added 1%.

Bonds

Yields on 10-year Treasuries dropped six basis points to 2.35%, after giving up one basis point on Friday. Core European bonds traded higher, with the German 10-year yield dropping two basis points.

Commodities

Gold rose 1.2% to $1 258.82, heading for the highest close since November 10. West Texas Intermediate oil slipped 0.9% to $47.53 a barrel, erasing an earlier gain of as much as 0.7%.

Crude producers pledged to consider extending their pact limiting supply. Iron ore futures slid 3.9%, after briefly erasing gains for the year. The commodity surged in the opening weeks of 2017 following a surprise rally last year amid optimism about the demand outlook in China. Copper fell 1.7% and tin dropped 1.8%.

Asia

The MSCI Asia Pacific Index fell 0.3%, with more than three shares falling for every one advancing. Japan’s Topix led declines, dropping 1.3% to the lowest since February 9 and almost wiping out gains for 2017. Chinese shares traded in Hong Kong fell 1.1% and India’s Sensex index slid 0.6%.

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