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Global stocks recover poise, dollar strengthens on receding Trump scares

What you need to know

  • Stock markets firm after Wall Street rebound
  • Easing US political fears support the dollar
  • Treasury yields nudge higher ahead of Fed minutes
  • Brent crude rallies as Opec meeting looms
  • Gold pressured by firmer dollar, dipping $1 to $1,254 an ounce.

Hot topic
Global financial markets are continuing their recovery from a patch of turbulence in the middle of last week when political turmoil in Washington cast doubt over the prospects for president Donald Trump’s pro-growth policies, such as tax cuts and infrastructure spending, but the pace of the markets’ mood swings is rapid.

As Kit Juckes, an analyst at Société Générale puts it:

In early March, [reports of] a record net speculative short US 10-year Note futures position was a warning that the bond market sell-off was losing momentum. Less than three months later, the net 10-year Note position is the longest since 2007. That’s quite some turn around and captures the market’s mood shift. Hope of a significant fiscal boost have melted away and been replaced by fear of both domestic and international turmoil.

US futures suggest the S&P 500 later in New York will gain 4 points to 2,386 — leaving the Wall Street benchmark just 0.6 per cent shy of the record closing high hit a few weeks ago.

The S&P dropped 1.8 per cent last Wednesday, its worst one-day fall in eight months, when the controversy surrounding Mr Trump caused growth-focused assets and the dollar to be dumped and encouraged investors to move into supposed havens like Treasuries, gold and the Japanese yen.

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Market sentiment is being helped by a bounce in the energy sector.

Oil prices rallied some 5.5 per cent last week, their best showing since early December, after Russia and Saudi Arabia said they favoured extending their production cuts beyond the initial deadline of March next year.

The rebound came ahead of this week’s Opec meeting in Vienna on Thursday, when the cartel will consider that extension.

Brent crude, the international benchmark, is up another 0.7 per cent to $53.97 a barrel on Monday, having earlier traded above $54 for the first time in a month. West Texas Intermediate, the main US contract, is gaining 0.8 per cent to $50.74.

Equities
Bourses are welcoming the gains for S&P futures, with the pan-European Stoxx 600 up 0.2 per cent.

London’s FTSE 100 is adding 0.3 per cent as miners gain after iron ore rose 4.7 per cent on China’s Dalian Commodity Exchange to its highest level in a little over a fortnight. Oil producers are also underpinned by the rallying crude price.

Japan’s Topix gained 0.5 per cent, with Takata shares up by 17 per cent, their daily limit, as the troubled airbag maker continued to rally after reaching a $553m settlement with carmakers relating to flawed airbags.

Hong Kong’s Hang Seng advanced 0.9 per cent, pushed up by market heavyweight Tencent as the Chinese tech giant rose 2.8 per cent to a record high. However, mainland China’s Shanghai Composite was down 0.8 per cent as brokerages and the real estate sector were pressured by increased government regulations.

Forex
Major currencies are mostly weaker against the US dollar.

The dollar index, a measure of the US currency against a basket of global peers, is up 0.1 per cent to 97.28.

It fell to a five-and-a-half-month low of 97.08 on Friday as James Bullard of the St Louis Federal Reserve said the central bank’s projected path for lifting interest rates might be “overly aggressive”.

The Japanese yen is down 0.1 per cent to ¥111.35 per dollar after trade data showed exports and imports grew in April but at a slower pace than economists had forecast.

The euro is off 0.1 per cent to $1.1188 and the UK pound is down 0.3 per cent to $1.3002 after polls over the weekend showed the governing Conservative party holding a narrower lead against Labour ahead of the election in June.

(Chart: Bloomberg)