On Monday, the dollar, stocks, and bond yields all moved lower while investors cashed in on some of their recent bets which had expected the fiscal push from the incoming Trump administration is set to support the riskier assets at the bonds’ expense.
Wall Street reached new highs, and the dollar gained to reach a 14-year high in the last week, which tempted the investors to cash in and gain a profit during the final full week of trading for the year got underway.
Following last week’s abuse, the Japanese yen rebounded sharply, thanks to helping from the strong Japanese export data, while the Bank of Japan started a two-day policy meeting. It is hugely anticipated that the rated will keep hold.
Among the biggest fallers in Europe were the bank stocks, after two weeks of strong gains taking advantage of the rising bond yields. The decline of the bank stocks pushed the wider indices into the red. Asian stocks dropped to a four-week low.
Europe’s index of leading 300 shares pulled back from Friday’s 11-month high and it fell 0.1%. Banks dropped 0.9%. Italy’s Monte dei Paschi’s shares dropped 9% while it made a final attempt to gain 5 billion euros by the year end and to try to avoid a state bailout.
The DAX (Germany) and CAC (France) dropped 0.1 and 0.2 percent, respectively, and the FTSE 100 (Great Britain) rose 0.1 percent. U.S. stock futures signaled to a marginally higher open on Wall Street.
“The recent sessions have seen a slight stalling due to the Trump rally, but there have been some signs that the year could end on a negative note. In very quiet periods like this one, things are often very hard to predict,” stated OANDA senior market analyst, Craig Erlam.
MSCI’s widest shares index of Asia-Pacific outside of Japan dropped for a third straight day. It dropped 0.3% to a four-week low. Since Trump’s election, it had lost 3.7%.
Also, the investors became careful following the statement of the top leaders in China over the weekend that they would prevent asset bubbles in 2017 and they would put greater importance on preventing financial risk.
Japan’s Nikkei that gained from the yen's significant drop against the dollar broke its nine-day winning streak. The Nikkei dropped 0.1 from Friday’s one-year high.
On Friday, the financial markets turned “risk-off” for a short period in the late U.S. trade after the news that a Chinese Navy warship seized in international waters a U.S. underwater drone in the South China Sea.
This diplomatic incident seems to have been resolved for the time being after the two countries stated on Saturday that China would return the drone.
Forex and Bonds
On Monday, in the bonds the 10-year U.S. Treasuries earnings stood at 2.58% in Europe. They were down by approximately two basis points on the day but still close to its two-year high of 2.641% it reached on Thursday.
It rose close to 100 basis points from its low in the hours immediately following the U.S. election on November 8. The increase, and the Fed interest rate hike last week edged the dollar significantly higher of late.
Last week, the dollar index against a trade-weighted basket of the six major currencies rose to a 14-year high of 103.56. It did give up some of the gains on Monday. The index’s last amount was at 102.93.
The euro jumped back from its 14-year low of $1.03665 to $1.0435 last week. This rise was helped by the strong German business morale data, and the dollar dropped 0.6% against the yen to 117.30 yen.
“The dollar is like a brake on the amount of the Fed tightening and the extent of the sell-off of the bond,” according to Societe Generale currency analysts on Monday.
The Bank of Japan, at its two-day policy meeting, is expected to hold policy, including its double targets of 0.10% less interest as part of excess reserves and the zero percent 10-year government bond yield.
Oil prices increased in the expectations of tighter crude supply going into 2017 after the decision of the OPEC and other producers to cut output.
There was a gain of 0.3% for Brent Futures to $55.37 per barrel. U.S. West Texas Intermediate crude gained 0.3% to $52.05 per barrel.