Bonds jump, dollar sinks fast in wilting ‘Trump Trade’

Listen to this article

00:00
00:00

In a nutshell…

● Nervous mood in the wake of US President Trump’s failure to repeal Obamacare
● S&P 500 futures slide and European stocks weak as “Trump trade” fades
Dollar index drops to lowest in nearly eight weeks as yen surges
Gold jumps and government bond yields slide as traders seek havens
Oil features in industrial commodity retreat

Global markets are in a downbeat mood as investors temper expectations of pro-business reforms from the Trump administration after Republicans failed to unify around healthcare reforms last week.

Stocks and the US currency had rallied following Donald Trump’s capture of the White House in November, as traders made bets that his mooted policies of tax cuts, deregulation and increased infrastructure spending would boost corporate profits.

The S&P 500 hit a record high of 2,396 at the start of March and the dollar index touched 103.82 at the beginning of 2017, its strongest level in 14 years. Government bond yields moved higher in anticipation that faster US economic growth would cause the Federal Reserve to raise interest rates at a quicker pace.

But those “Trump trades” are being trimmed as some traders become less bullish about the White House’s ability to push through its agenda given its inability so far to replace “Obamacare”.

The dollar index, which tracks the US currency against a basket of peers, is down 0.3 per cent to 99.28, at its lowest level since February 2.

The benchmark 10-year Treasury yield is down 0.056 percentage points to 2.35 per cent and the equivalent maturity German Bund yield is just 0.37 per cent, down 0.05 percentage points on the day.

US equity futures suggest the S&P 500 will fall 19 points to 2,325 when trading gets under way later in New York, leaving the Wall Street benchmark at a six-week low.

Equities
The pull back in US futures is infecting sentiment across stock markets.

The pan-European Stoxx 600 is starting the week down 0.8 per cent as London’s FTSE 100, which hit a record closing high of 7,434 on March 17, sheds 0.9 per cent to 7,273 as recently chipper sectors like miners and banks falter.

Asia-Pacific equities also fared badly, with Japan-listed stocks feeling the squeeze from renewed yen strength. Tokyo’s Topix index was down 1.3 per cent with across-the-board losses led by declines in real estate and financials.

Forex
Japan’s yen is leading the gainers against the wilting greenback, strengthening 1 per cent to ¥110.20 per dollar — its strongest since November 22.

The euro is up 0.6 per cent to $1.0861, the highest since December 8, while sterling is adding 0.6 per cent to $1.2543 ahead of UK prime minister Theresa May firing the Brexit starting gun this week.

Many emerging markets currencies are taking advantage of the buck’s retreat, with the Turkish lira and South African on the front foot.

Commodities
The waning Trump trade is being felt across the commodity sector, with industrial raw materials flagging but precious metals rallying.

Gold, which tends to thrive on a weaker dollar and falling bond yields, is gaining 1.1 per cent to $1,258 an ounce, in line to finish the session at its most expensive since mid November.

Oil prices are again under pressure as concerns that demand growth may not be as strong as expected adds to concerns about buoyant US supply.

Brent crude, the international benchmark, is down 0.8 per cent to $50.38 a barrel while the main US contract, West Texas Intermediate, is off 1 per cent to $47.48.

Iron ore futures in China fell sharply as the broader market’s cautious mood exacerbated worries about growing inventories of the steelmaking ingredient.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.