Zimpapers Logo

Donald Trump

London. — Growing doubts US President Donald Trump will be able to deliver on a promise of tax cuts that has powered stock markets to record highs pushed shares lower yesterday and drove investors to seek safety in government debt, gold and the yen.

The dollar touched a four-month low against the Japanese currency, whose strength helped push Tokyo stocks to a three-week low, while the euro held close to its highest since early February at around $1,08.

Investors’ flight to safety pushed down US treasury yields and the gap between US and German 10-year government borrowing costs hit its narrowest since November.

European shares opened lower after Asian shares suffered their biggest percentage daily fall since mid-December and, on Tuesday, the S&P 500 fell by more than 1 percent for the first time since October 11.

Waning risk appetite also hit commodities: Brent crude oil fell 20c to $50,76 a barrel, while copper fell 0,5 percent to $5,747 per tonne.

The main factor behind the sell-off in risky assets was doubt that Trump would be able to deliver on his agenda for economic growth, including tax cuts and relaxed regulation, any time soon.

Trump is trying to rally Republican legislators behind a plan to dismantle Obamacare, and investors worry that failure could spell trouble for the promised tax cuts and regulatory changes.

Société Générale currency strategist Alvin Tan, in London, said a Federal Bureau of Investigation (FBI) investigation into possible ties between Trump’s campaign and Russia was also adding to investor concern.

“All in all, that’s adding to a picture that the much-hoped-for and hyped fiscal stimulus package may not be coming as soon as markets would like it to come, if at all,” he said.

The pan-European Stoxx 600 index fell 0,9 percent to a two-week low, led lower by banks and miners. Britain’s FTSE 100 index fell 0,9 percent MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1,4 percent at one point, its biggest intraday percentage fall since December 15. In the previous session, the index hit its highest level since June 2015.

Japanese stocks fell 2 percent, Australian shares tumbled 1,6 percent and mainland Chinese shares closed down 0,5 percent. MSCI’s main measure of emerging market equities slid nearly 1 percent. E-mini futures on the S&P500 and Dow Jones Industrial Average indicated Wall Street would open lower and the CBOE Vix index, known as the “fear gauge”, of implied volatility on the S&P topped 13 percent for the first time since mid-January.

The dollar was flat against a basket of currencies but down 0,3 percent versus the yen, having hit a four-month low of ¥111.25 earlier in the day.

The euro dipped 0,2 percent to $1,0790, off a high of $1,0818 as European trading began. Sterling fell 0,1 percent to $1,2463.

Treasury yields

US treasury yields, which fell on Tuesday with Wall Street, dropped further. The 10-year benchmark yield dipped below 2,4 percent for the first time since March 1.

In early trade, the closely watched gap between US and German 10-year yields touched its narrowest since November at about 195 basis points. German 10-year yields, the benchmark for eurozone borrowing costs, then fell further and were last down 4.8 basis points at 0,41 percent.

“Market participants are worried about the effects and feasibility of Donald Trump’s growth programme,” DZ Bank strategist Birgit Figge said.

“Alongside this, speculation is persisting . . . that the ECB (European Central Bank) may possibly scale back its ultra-expansionary policy stance to some extent at an earlier point in time than is currently being assumed.”

Gold hit a three-week peak of $1 248,47 per ounce and last traded up 0,2 percent at $1 247 per ounce. It has rallied almost $50 from last week’s low after a less hawkish policy statement than many investors had expected from the US Federal Reserve. – Reuters.