● Dollar index near lowest since Trump election
● Treasury yields inch off recent trough
● European stocks soft but S&P 500 futures nudge higher
● Gold holds above $1,290 an ounce
● Brent dips back below $50 a barrel
“Markets are cautious as we approach the triple risk Thursday. Safe haven assets have gained, equities are edgy and WTI crude continues to be supported at the $47 levels.”
So say analysts at Citi, neatly encapsulating the generally tentative tone as investors hunker down ahead of the UK general election, European Central Bank monetary policy decision, and testimony in Washington by former FBI chief James Comey – all taking place tomorrow.
Mr Comey’s comments may stoke the controversies dogging the Trump administration, adding to investors’ concerns that the White House will struggle to deliver the mooted policies of tax cuts and infrastructure spending that are intended to boost the economy.
The dollar is hovering at the lowest levels in seven months, and benchmark 10-year US government bond yields have shed nearly 50 basis points since hitting a two-and-a-half year high in March.
The dollar index, a measure of the US currency against a basket of global peers, is down 0.1 per cent at 96.56, having at one point on Tuesday touched 96.52, its weakest since Mr Trump’s election victory in November.
Moves are meagre on Wednesday, with the euro easing less than 0.1 per cent to $1.1270 and the Japanese yen, whose favoured haven status saw it strengthen in the previous session to a six-week intraday high of ¥109.20 per dollar, is just 0.1 per cent better off at ¥109.26.
The pound is 2 pips firmer at $1.2909 as traders note a narrowing of polls for the UK election. The sterling/dollar one-week risk reversal, a measure that turns negative as investors seek more protection from the possibility of a plunging pound, is at a 12-month low of minus 3.96 per cent. It was roughly zero just a few weeks ago.
One notable forex performer is the Australian dollar, which is up 0.4 per cent to US$0.7535 after data showed the country’s economy grew 0.3 per cent in the first quarter of the year, matching economists’ expectations. The annual rate of growth, at 1.7 per cent, was the slowest since 2009.
The market had been primed for a soft result after weak Oz exports data on Tuesday prompted a number of economists to pare their GDP forecasts.
Core sovereign bond yields, which move opposite to the asset price, are a touch firmer after many fell to multi-week lows in the previous session.
The US 10-year Treasury yield is up one basis point to 2.15 per cent. The benchmark on Tuesday dipped to an intraday seven-month trough of 2.13 per cent after meek US jobs data published last Friday pointed to slowing improvement in the economy.
The US two-year bond yield, which is more sensitive to monetary policy moves, is steady at 1.30 per cent as the market continues to see a strong chance that the Federal Reserve will raise interest rates next week.
German 10-year Bund yields, which hit a six-week intraday low of 0.25 per cent on Tuesday, are up 1bp on the session to 0.27 per cent despite data showing the country’s factory orders slipped in April.
Stock markets have been somewhat inured to the “risky Thursday” narrative, dipping only mildly from recent record levels.
US index futures suggest the S&P 500, which closed on Monday at a fresh peak of 2,439, is looking to gain 2 points to 2,431 when trading gets under way later in New York.
The UK’s FTSE 100 is easing 0.2 per cent to 7,509, just 39 points shy of the closing high matched at the start of the week.
Japan’s benchmark Topix gained less than 0.1 per cent, with Toshiba among the best performing big-name stocks in the wake of reports that the troubled conglomerate had narrowed potential bidders for its prized chip unit to Broadcom or Western Digital.
Hong Kong’s Hang Seng index fell 0.3 per cent, but AAC Technologies gained 16.7 per cent after resuming trading for the first time since mid-May. The Apple supplier came under fire from a short seller report last month, but on Wednesday dismissed the claims in that report as “groundless, false or misleading”.
On the mainland, China’s Shanghai Composite rose 1.2 per cent as the central bank injected more funds into the financial system, reducing liquidity concerns.
In Singapore, where the benchmark Straits Times index was up 0.2 per cent, Noble climbed 4.6 per cent after an early drop of more than 6 per cent. Investors were digesting news that the troubled commodities trader’s main lenders are in last-ditch talks over whether to allow it more time to find a white knight or force it into restructuring or liquidation.
Brent crude, the international oil benchmark, is down 0.5 per cent to $49.88 a barrel, while West Texas Intermediate, the main US contract, is off 0.3 per cent to $48.03.
Oil prices have been volatile this week after several Arab states — led by Saudi Arabia — severed diplomatic ties with Qatar, raising uncertainty about recently agreed cuts to output by Opec and non-Opec oil producers.
Gold is down 0.1 per cent to $1,291 an ounce, but is hovering near its most expensive price since November as the recently softer dollar and falling bond yields support the precious metal haven.