Dollar Falls On Fading Trump Euphoria; Sterling Slide Spikes UK Stocks; US Futures Flat

Global stocks were fractionally lower in early European trading, closed Asia mixed, while S&P futures were unchanged, as the dollar fell for a second day on concerns ahead of Trump's press conference on Wednesday. Oil rebounded after its Monday plunge, while commodity metals like iron ore rose limit up in Chinese trading. Top overnight stories include Valeant announcing the sale of $2.1 billion in assets to pay down debt; VW managers warned to stay in Germany as U.S. charges near; Yahoo! (YHOO) plans to shrink board, get rid of Marissa Meyer and change its name after Verizon (VZ) deal.

On Monday, declines in energy and financial stocks weighed on the S&P 500 and helped stall the Dow's pursuit of the 20,000 milestone ahead of earnings season and expected U.S. policy changes under Trump. Weakness spread to the the dollar, which has dipped against the euro and yen as euphoria over Trump policies is now fading, and was 0.15% lower against a basket of six major peers, at 101.62 slipping further from last week's high of 103.82, its highest level since 2002. 

The Bloomberg Dollar Spot Index weakened for the fourth time in five days ahead of the U.S. president-elect’s first news conference since July on Wednesday, and has now lost all YTD gains.

 

"The market has high expectations for Trump's economic policy; perhaps they are booking profits just in case he throws in a curve-ball at tomorrow's much anticipated press conference," said City Index research director Kathleen Brooks.

Speaking of Trump's upcoming statement, "the market is increasingly nervous about Donald Trump's press conference on Wednesday. For FX markets, what will be particularly important will be what his plans are for the trade policy, for the relationship with China," said Commerzbank currency strategist Esther Reichelt, in Frankfurt.

The pound touched its lowest level since Oct. 25 after U.K. Prime Minister Theresa May said over the weekend that negotiations on Brexit will be about “getting the right relationship, not about keeping bits of membership.”A so-called hard Brexit may push the Bank of England to keep rates lower for longer, while weakening the pound and supporting foreign-focused companies in the main stock index. The currency was down 0.2 percent at 1.2153 per dollar Tuesday. As a result of the ongoing plunge in sterling, the FTSE not only hit a new record high, but continued its unbroken pattern of gains, rising for the 11th consecutive session, the longest winning streak in 33 years.

Oil prices were a touch firmer at $55.11 LCOc1, a day after suffering their biggest one-day loss in six weeks. They fell nearly 4 percent on Monday on fears that record Iraqi crude exports in December, increased supplies from Iran and rising U.S. output would undermine an agreement by exporters to curb production.

Looking at Asian markets, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced just 0.5 percent, while Chinese stocks .CSI300 were little changed, largely shrugging off further signs of improvement in the industrial sector. Data showed producer inflation surged to a more-than-five-year high in December as raw materials prices soared.

This morning in Asian economics, the focus has turned over to the latest inflation report in China. The data has made for slightly mixed reading with CPI printing at +2.1% yoy in December which is down from +2.3% in November and also slightly lower than expected (+2.2% expected) following a slowdown in food price inflation. However, PPI has surged to +5.5% yoy (vs. +4.6% expected) from +3.3% and in doing so has reached the highest level since September 2011.

"Reflation continues in the factory sector," said Julia Wang, an economist at HSBC Holdings Plc in Hong Kong. "The stable CPI suggests that the reflation is confined mostly in the industrial sector and hasn’t filtered into the real economy. So the PBOC would possibly not respond to it until inflation expands to the real economy."

"Factory reflation is a positive for China’s economy – real borrowing costs are now negative," Bloomberg Intelligence Chief Asia Economist Tom Orlik wrote in a note. "Rate hikes are part of the policy debate again, especially given the need to support a weak yuan."

"The risk is to the upside for inflation and removes the possibility for near-term policy easing," said Li Wei, the China and Asia economist for Commonwealth Bank of Australia in Sydney. Only four months out of a multi-year factory deflation, the world’s second-largest economy is poised to export inflation around the globe through its supply chains as manufacturers squeezed by higher input costs raise asking prices. Whether that rebound will be sustained hinges on how the global economy fares under a Donald Trump presidency and whether trade tensions flare between the U.S. and China.

In Europe, the Stoxx Europe 600 Index was little changed in London.Miners led European gains after China’s producer price index rose at the fastest pace in more than five years in December. Wm Morrison Supermarkets Plc climbed 4.2 percent in the U.K. after reporting better-than-forecast holiday sales.

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