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Manchester blast, Trump concern spur risk-off tone in markets

May 23 2017 09:53
Adam Haigh and Min Jeong Lee, Bloomberg

Sydney - The yen rose and the British pound dropped with US equity-index futures as investors turned cautious after a suicide bomb attack in the UK and the latest reports on the Trump administration.

The Japanese currency rose against almost all its major peers and S&P 500 futures dropped as the Washington Post reported Donald Trump asked intelligence chiefs to publicly deny any collusion between his campaign and Russia. 

The pound slipped after a terrorist attack killed at least 22 people at a concert in Manchester. The Mexican peso slid after S&P said it may cut Brazil’s sovereign credit rating. Noble shares plunged amid concerns over a default. Oil dropped below $51.

Political wrangling in Washington returned to the fore, taking the focus away from global economic growth. The US president in March asked Director of National Intelligence Daniel Coats and NSA Director Michael Rogers to publicly deny existence of any collusion between his campaign and the Russian government, the Washington Post reported, citing unidentified current and former officials.

“Trump risk and geopolitical concern triggered by the UK news this morning is making the market prone to risk-aversion moves,” said Ayako Sera, a market strategist with Sumitomo Mitsui Trust Bank in Tokyo. “The biggest thing, nevertheless, is the wariness over suspicion surrounding Trump and Russia.”

At least 22 people were killed in a suicide bomb attack at an Ariana Grande concert packed with children, in the worst terror incident on British soil since the London bombings of 2005. UK police said the attack was carried out by one man who died at the scene after detonating an explosive device.

Traders also weighed the impact of Trump’s budget proposal. He would dramatically reduce the US government’s role in society with $3.6trn in spending cuts over the next 10 years in a plan that shrinks the safety net for the poor, recent college graduates and farmers.

US monetary policy remains in focus after recent data showed all was not well for the world’s largest economy. Fed governor Lael Brainard said she’s not seeing much progress on core inflation.

Here are some key upcoming events:

Hong Kong will release CPI numbers, while Taiwan has industrial output and Germany’s Ifo report is due.  South Korea, Canada, South Africa and Thailand set interest rates this week. A key Opec decision will be made in Vienna on Thursday.

Here are the main moves in markets:

Stocks 

Futures on the S&P 500 fell 0.1% as of 09:15. The underlying gauge rose 0.5% on Monday. The index has climbed 1.6% in three days following a 1.8% rout last Wednesday and sits just 0.4% from an all-time high. The Stoxx Europe 600 Index was little changed, as was the UK’s FTSE 100 Index.

Japan’s Topix dropped 0.2% after swinging between gains and losses. South Korea’s Kospi rose 0.3%. Hong Kong’s Hang Seng fell 0.1%. The Shanghai Composite Index lost 0.5%. The selloff in Brazilian assets resumed on Monday.

The NEXT Funds Ibovespa Linked Exchange Traded Fund, an equity ETF that tracks Brazil’s benchmark index, slumped 3.9% in Tokyo trading on Tuesday. Noble plunged 28% before being halted in Singapore as S&P said the embattled commodity trader could default on its debt over the next year as it spirals further into distress.

Currencies

The yen rose 0.1% to 111.14 per dollar. The pound slid 0.1% to $1.2987. The euro rose 0.1% to $1.1248. The New Zealand dollar jumped 0.4%. The Mexican peso dropped 0.1%.

S&P Global Ratings said it may cut Brazil’s rating as the nation’s fiscal adjustment is at risk of stalling amid political uncertainty following allegations against President Michel Temer. The Bloomberg Dollar Spot Index was flat, trading near the lowest level since November.

Bonds

The yield on 10-year Treasury notes fell two basis points to 2.24%. Yields on Australian government debt with a similar maturity lost four basis points to 2.45%. Germany benchmark yields slipped one basis point while those in France and the UK fell two basis points.

Commodities

WTI crude fell 0.8% to $50.72, after jumping above $51 per barrel on Monday. Gold rose less than 0.1% to $1 261.74 an ounce.

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