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Brexit and Trump Uncertainty Make Investors Turn Wary


01/16/2017


Brexit and Trump Uncertainty Make Investors Turn Wary
As uncertainty over the terms of Britain's divorce from the European Union undermined appetite for risky assets and seeking shelter in gold and the Japanese yen, investors bailed out of sterling and stock markets in Europe and Asia on Monday.
 
After being hit by a lack of clarity over the policies of U.S. President-elect Donald Trump, whose inauguration is on Friday, the dollar rose, except against the yen, rebounding after suffering its worst week since November.
 
"(The movement) shows that people are looking ahead this week with Trump's inauguration and discussions on Brexit. There is a lot of uncertainty moving forward," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central
 
In a move that could raise borrowing costs for the country's banks, rating agency DBRS cut Italy's credit rating after markets closed on Friday and yields on low-risk German government bonds fell but those on Italian equivalents edged up.
 
Barring an unexplained "flash crash" in October, was its weakest against the dollar in 32 years, the pound  fell as low as $1.1983 in thin early Asian trade.
 
Contributing to an unprecedented 14-day rally in the blue-chip FTSE 100 stock index was the fall in sterling, which makes UK exports cheaper. Though still outperforming falling European markets, the index was fractionally lower on Monday. The main STOXX 600 index fell 0.6 percent, led by autos and banks.
 
While Japan's Nikkei lost 1 percent as the strong yen hit exporters and Shanghai  shed 0.3 percent, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.6 percent.
 
"Broadly, the market has not had sterling and Brexit and Theresa May in its mind for the last two months - it's been driven by Trump and Treasuries, and more the U.S. drivers. And now for two weeks in a row we've had news on May ... really bring that to the forefront again," said Citi's head of European G10 currency strategy in London, Richard Cochinos.
 
There was a rise of 0.4 per cent in the dollar index .DXY, which measures the U.S. currency against six of its peers. While the yen, seen as a safe investment in troubled times, rose 0.4 percent to 114.02 per dollar, the euro  fell 0.5 percent to $1.0595.
 
When they use the country's sovereign bonds as collateral, Italian banks will have to pay more to borrow money from the European Central Bank due to Italy's downgrade. For4eing buyers might also find Italian banks unattractive due ot this.
 
There was rise of 0.4 percent in Gold, a perennial safe-haven investment, which touched $1,201 an ounce.
 
Even though prices of oil were put under pressure as there were doubts that large oil producers will cut output as agreed by the Organization of the Oil Producing Countries and others, it held steady.
 
Brent, the international benchmark, last traded at $55.56 a barrel, flat on the day.
 
(Source:www.reuters.com)