LONDON, Nov 18 — European stock markets declined today and the euro struck a near 12-month low against the dollar on sky-high expectations of a US interest rate hike in December.
A surge in the dollar to a near six-month high against the yen provided another rally for Japan’s Nikkei, with a cheaper Japanese currency helping exporters.
Elsewhere in Asia, foreign investors removed cash from emerging markets to seek out better US returns, traders said.
In Asian trade, the euro slumped to US$1.0582, the lowest level since early December last year. The greenback also reached ¥110.93, a high since the end of May.
The strong dollar weighed on both gold and oil prices which are priced in the unit on international markets. Gold slumped to a near six-month low at US$1,202.81 an ounce.
Oil traders are also nervously waiting for Opec to finalise a deal to cut production at a meeting later this month.
Around 1030 GMT, the London and Paris stock markets were down about half a per cent compared with the close yesterday.
“The dollar is once more at the forefront of investors’ mindsets, as the incessant rise which has dominated the post-election period continues apace,” said Joshua Mahony, market analyst at IG traders.
“In a high growth environment, it is likely we will see investors moving into the US as a source of capital appreciation.
“However, the hesitancy seen in US stock markets is a clear nod to the fact that with such dollar appreciation comes an environment which is progressively more difficult for US exporters,” he added.
Last week’s shock election of Donald Trump has sent tremors through global markets, with developed nations seeing broad gains but many in Southeast Asia worried about his rhetoric on international trade agreements.
His promises to ramp up spending on infrastructure and cut taxes have led to warnings of a surge in inflation that would force the Fed to hike rates to cap prices. This in turn has led to a rush back into the dollar.
Yesterday, Federal Reserve boss Janet Yellen all but confirmed a first US rate rise in 12 months by saying such a move would be appropriate “relatively soon”. Her remarks came as a new batch of data showed the world’s largest economy in rude health.
Weekly new jobless claims hit a 43-year low, the consumer price index posted its strongest gain in six months and monthly housing starts increased.
“Despite no concrete economic proposals on the table from Trump’s team… the market is fully subscribing to a return of Reagan-esque fiscal (spending), along with a steeper path of interest rate normalisation,” said Oanda trader Stephen Innes.
“The markets continue to price in a less dovish Fed in the future, as the market is still likely underpricing the actual inflationary impact of the anticipated fiscal spend.”
In Asia, the dollar broke above ¥110 yen for the first time since June.
Among emerging market currencies, the South Korean won fell 0.6 per cent, the Indonesian rupiah shed 0.3 per cent and the Mexican peso fell two per cent.
Malaysia’s ringgit was off 0.4 per cent at a 10-month low. An official said today the country’s central bank is intervening in markets to support the beleaguered unit, which has lost five per cent since last week’s US election result.
However, the bank’s assistant governor Adnan Zaylani called speculation it could introduce capital controls to prevent a flight of cash from the country “baseless”.
Key figures around 1030 GMT
London – FTSE 100: DOWN 0.6 per cent at 6,752.01 points
Frankfurt – DAX 30: DOWN 0.2 per cent at 10,667.73
Paris – CAC 40: DOWN 0.5 per cent at 4,506.53
EURO STOXX 50: DOWN 0.7 at 3,021.06
Tokyo – Nikkei 225: UP 0.6 per cent at 18,967.41 (close)
Hong Kong – Hang Seng: UP 0.4 per cent at 22,344.21 (close)
Shanghai – Composite: DOWN 0.5 per cent at 3,192.86 (close)
New York – Dow: UP 0.2 per cent at 18,903.82 (close)
Euro/dollar: DOWN at US$1.0601 from US$1.0627 yesterday
Dollar/yen: UP at ¥110.69 from ¥110.09
Pound/dollar: DOWN at US$1.2414 from US$1.2418
Oil – West Texas Intermediate: DOWN 28 cents at US$45.14 per barrel
Oil – Brent North Sea: DOWN eight cents at US$46.41 — AFP