Article / 07 February 2017 at 8:01 GMT

Morning Markets: Rush to safe havens amid global uncertainty

Consultant editor
Denmark

 

Watchlist

  • Germany: Industrial Production (0700 GMT)
  • US: Job Openings & Labor Turnover Survey (1500 GMT)

With the situation on both sides of the Atlantic looking ever more precarious, safe-haven gold has reached $1,233/oz, a high not seen since the immediate aftermath of the US elections.

US investors who had been bullish on Donald Trump’s presidency are now beginning to err on the side of caution as the White House’s flailing attempts to enforce its travel ban are repeatedly thwarted by the judiciary; suggesting that the president’s ability to keep his campaign promises may not be as simple as him staying true to his already fluid words.

Overnight, all three major US indices finished below their previous day’s closes after US stocks traded weakly amid growing concerns and uncertainty over Trump’s “America First” stance. The uncertainty was further reflected the dollar’s weakness against the yen – USDJPY yesterday fell below the 112 mark for the first time since late November, only just crossing back over the line as European markets opened this morning.

The fear is that Trump’s protectionist policies could see a reduction in US consumption while weakening the currencies of America’s trade partners in the fashion of the Mexican peso.

On Monday, European Central Bank president Mario Draghi hit back at the Trump administration’s accusation that the euro had been “grossly undervalued” in order to allow Germany to exploit the US and its fellow EU member states.

“We are not currency manipulators,” Draghi told the European Parliament, where he reiterated his stance that leaving the euro is not an option.

His remarks came in response to French presidential hopeful Marine Le Pen’s promise that, if elected, her far-right Front National would pull France out of the common currency.

The spectre of a “Frexit” situation – and therefore the potential for the disintegration of the European Union – has become more pronounced in recent days. Le Pen’s main rival, former prime minister Francois Fillon, has been digging in his heels over allegations he illicitly funnelled almost €1 billion of state funds to his wife over the course of several years.

The scandal has seen conservative Fillon lose nearly three percentage points in the polls over the last week, with just 18.5% of polled French saying he has their vote; versus Le Pen who has gained 1.5 percentage points and maintaining pole position with 25.5% declaring their support for her.

The uncertainty in France has seen French/German 10-year bond spreads at their widest since 2012. Meanwhile, the Frankfurt and London stock exchanges both closed lower yesterday amid the anti-EU rumblings in France and the growing wariness of Trump’s capricious presidency. 


Market signals

Asian session

  • Asian markets traded lower amid global risk-off sentiment
  • The ASX200 fell well below the 5600 support level
  • Japan's Nikkei 225 lost 0.2% on the back of yen strength
  • The gold price shot to a three-month high
  • The Reserve Bank of Australia kept the cash rate on hold, as expected
  • NZ central bank governor Graeme Wheeler will step down when his term ends in Sep

Forex ahead

  • The AUD jumped 0.4% to 0.7672 US cents after the rates decision
  • The yen traded strongly as a safe-haven currency, worth 111.68 per dollar in morning trade
  • The euro fetched 120.145 yen, near a two-month low of 119.975 set overnight

From the Floor

Risk-off in Europe. “We see a high risk of further spread widening and volatility in the bond market,” says Fasdal

Oil rangebound. "The market has been trading sideways for a few months, and to me that is a dangerous signal," says Hansen 


Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1..2..3

Every time we hear about EUR political wobbles, the Germans seem to come to the rescue, revealing their industrial strength, says James Picerno.

Tale of two trades

The ASX saw one up and one down this morning - Macquarie's Q3 earnings sparked a selloff, while Transurban's earnings saw it soar, as Saxo Capital Markets reports.

French for fear
Jitters over the French elections hit the EUR and the bias is for it to go lower, writes the team at Saxo APAC Sales Trading.

Wake-up call
The widening of peripheral spreads is evidence at last that Europe is waking up to the existential threat posed by the likes of Marine Le Pen. The euro implications are clear, says John J Hardy.

Le Pen's opportunity
France chooses its next president this Spring and with Francois Fillon's campaign in disarray, Marine Le Pen could be poised to take advantage, writes Christopher Dembik.

Tip-top
Markets may be hanging on every word coming from the mouth/tweet of president Donald Trump, but nothing ever stays quite the same, and James Kim gives his top tips for the week.

h
 Marine Le Pen can quite possibly sense an unlikely presidential victory. Photo: Shutterstock

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3y
helicongrowth helicongrowth
$ up and gold up over last few sessions = risk off sentiment growing

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