January 12, 2017 / 10:11 AM / 3 years ago

GLOBAL MARKETS-Dollar tumbles, bonds rebound as Trump traction fades

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

* Dollar slips, bonds rally after Trump short on stimulus

* Healthcare stocks in Europe drop 2 percent after Trump

* Oil consolidates after bounce, gold hits 7 week high

By Marc Jones

LONDON, Jan 12 (Reuters) - The U.S. dollar nursed widespread losses on Thursday after President-elect Donald Trump’s long-awaited news briefing gave little clarity on future fiscal policies, disappointing bulls who had bet on major stimulus.

Trump did not mention tariffs against Chinese exports, a relief for Asian markets fearing the outbreak of a global trade war, and there was more pain for the dollar as the euro drove higher on ECB minutes showing a split over stimulus.

It was enough to send the dollar tumbling back below 114 yen for a time, to a 3-month low against the Canadian dollar, while Wall Street also looked set for a damp start after the Dow fell short of the 20,000 point mark again on Wednesday.

Trump’s lack of detail about stimulus also put safety plays such as bonds and gold back in favour and the retreating dollar brought relief for Brexit-bruised sterling and Turkey’s lira that has been most beaten up currency this year.

“The risk was always that a president like Trump would end up upsetting that consensus (of faster U.S. growth, stronger dollar) view by introducing more political uncertainty,” said asset manager GAM’s head of multi-asset portfolios Larry Hatheway.

European shares also fell, bucking gains in Asia overnight and weighed down by a 2 percent slump in healthcare stocks after Trump had said pharmaceutical firms had been “getting away with murder” with their prices.

They weren’t being helped either by a deck of stronger currencies.

The euro was back at $1.0670 for the first time in a month, shaky sterling climbed towards $1.23 and Sweden’s crown hit a four-month high and cracked its 200-day moving average against the euro after pacy inflation data.

It was bliss for bond markets that have been under the cosh since Trump’s election fueled bets on higher U.S. interest rates that tend to set the bar for global borrowing costs.

Euro zone bond yields fell 2 to 6 bps as German Bunds made ground and U.S. 10-year Treasury yields fell to their lowest level in more than a month at around 2.30 percent before a Federal Reserve policymaker nudged them back up.

“The economy is displaying considerable strength,” Philadelphia Fed President Patrick Harker said in Pennsylvania. “I see three modest hikes as appropriate for the coming year, assuming the economy stays on track.”


Wall Street had overcome its brief wobble to end Wednesday firmer, though the Dow Jones still didn’t manage to break the 20,000 points barrier and looked set to start around 0.2 percent lower later, according to futures prices.

A flock of other Federal Reserve members are also making speeches including its head Janet Yellen, Charles Evans, Dennis Lockhart, James Bullard and Robert Kaplan.

Wednesday’s first Trump news conference since the Nov. 8 election contained no details on tax cuts or infrastructure spending, anticipation of which had fueled the five-week rally in stocks and a selloff in global bond markets.

“The news conference was a far cry from the market friendly, pro-growth ‘presidential’ comments that Trump delivered at his acceptance speech,” wrote analysts at Westpac, adding it left a “veritable laundry list” of questions unanswered.

In commodity markets, oil was a shade firmer in Europe after a minor dip in Asian trading. U.S. crude was trading at $52.33 and Brent crude was up 30 cents at $55.40 a barrel follow gains of nearly 3 percent on Wednesday.

The weaker dollar also helped metals markets. Gold rose to a seven-week high just shy of $1,200 per ounce while London copper traded up almost 2 percent after electronic trading there was delayed by a mystery five-hour outage.

The let-up in greenback allowed the Turkish lira, which has lost around 8 percent this year after a near 18 percent slump last year, to recover over 2 percent.

South Africa’s rand rallied hard too with a 1.8 percent jump, while emerging market stocks rose 1.4 percent in their best day in over two months, having been helped by an aggressive rate cut in Brazil.

The recently weak Chinese yuan also firmed 0.6 percent and overnight offshore borrowing costs eased to 2.69 percent after surging to more than 60 percent last week.

Asset management giant PIMCO said on Thursday it thought there was a chance Beijing could fully float the yuan this year.

“Over the year, our base case is for the yuan to decline against the U.S. dollar by a mid- to high-single-digit percentage,” PIMCO’s head of Asian portfolios Luke Spajic said.

“However, we also think the possibility that the PBOC will allow the yuan to float freely, or at least widen its trading band, has increased.”

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Editing by Tom Heneghan

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