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Wellington - The Trump rally is running out of steam as fresh concerns over the outlook for the US and stability in Europe weigh on the dollar and global equities.
The Bloomberg Dollar Spot Index headed for its first weekly drop since Donald Trump’s election, as billionaire bond-fund manager Bill Gross said investors betting on a windfall from the president-elect are misguided, with any benefits from increased stimulus likely to be temporary. A selloff in technology shares flowed into Asia, driving declines in Japan, Australia and South Korea.
The yen extended its rebound against the greenback amid caution ahead of key American jobs data, Italy’s weekend referendum and Austria’s presidential vote. Gold rallied while bonds in Australia and New Zealand extended their slide as US oil stayed near $51 following OPEC’s deal to cut output.
Developed-market stocks are also on track for their first weekly retreat since the US vote, amid a let up in support for so-called reflation trades, which gained ground as Trump’s victory burnished the US economic outlook and helped odds on an interest-rate hike this month to 100%.
Italy’s referendum on reducing the power of the Senate is also weighing on risk sentiment, given a win for ‘No’ could result in the government’s ouster.
“Markets have rallied pretty strongly and we had three fantastic weeks but buying pressure certainly looks exhausted,” James Woods, global investment analyst at Rivkin Securities in Sydney said by phone.
“We will see some corrective declines and profit taking. And from a technical perspective, allowing momentum indicators to unwind before gains can be sustained.”
As well as the US nonfarm payrolls report, Friday brings updates on Australian retail sales and Thai foreign reserves.
Stocks
More than twice as many stocks fell as advanced on the MSCI Asia Pacific Index as of 08:39, with Japan’s Topix index slipping 0.7% and the Kospi index down 0.7% in South Korea. Technology and property shares led a 0.9%% decline in Australia’s S&P/ASX 200 Index, while w Zealand’s S&P/NZX 50 Index was down 0.4%.
Hong Kong’s Hang Seng Index slid 1.2% and the Shanghai Composite Index fell 0.8%. S&P 500 Index futures dropped 0.2% after the underlying benchmark lost 0.4% on Thursday, retreating for the third time in four days after ending last week at a record high.
Technology shares extended their declines since the American election, with the Nasdaq Composite Index down 1.4% on Thursday amid concern over Trump’s trade policy and as investors rotated out of one of the year’s most favored investment sectors. The Philadelphia Semiconductor Index dropped 4.9% last session, the most since Britain voted to leave the European Union.
Currencies
The yen edged up 0.2% to ¥113.85/$, after Thursday’s 0.3% gain, trimming its drop in the week to 0.6%.
The euro was up 0.2% at $1.0683 after climbing 0.7% in the previous session. Korea’s won dropped 0.4% while the South African rand climbed 0.3%. Bloomberg’s dollar gauge, which tracks the greenback against 10 major peers, was down 0.1% on Friday, heading for a 0.4% loss for the week.
The MACD, or short-term moving average line, on the dollar index is poised to fall below the so-called signal line as the gauge heads for its first weekly drop since vote. That indicates bears may be taking control of the trade unless a strong jobs report revives the dollar’s rally.
Bonds
Australian government debt due in a decade yielded 2.85%, up another seven basis points on Friday, headed for their highest closing level since January, while yields on similar maturity New Zealand notes rose by six basis points to 3.28%.
Ten-year Treasury yields dropped by two basis points to 2.43% after increasing by seven basis points to their highest close since July 2015 on Thursday. Economists predict an 180 000-worker increase in US November payrolls, after they climbed by 161 000 in October.
The Bloomberg Barclays Global Aggregate Total Return Index of bonds fell 4% in November, its biggest decline since the index was started in 1990.
Commodities
While West Texas Intermediate crude slipped 0.8% to $50.67 a barrel, it’s headed for a 10% rally this week.
The Organisation of Petroleum Exporting Countries’ three largest producers - Saudi Arabia, Iraq and Iran - overcame disagreements to reach Wednesday’s deal in a bid to drain record global stockpiles and boost crude prices. Russia committed to cooperate with the group by curbing production next year.
Gold for immediate delivery gained 0.4% to $1 176.30 an ounce, halting a three-day drop to trim its weekly retreat to 0.8%, the fourth straight decline. Copper futures in London fell for a second session, slipping 0.8%.
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