Winter is here for the reflation trade.
And there is a chill wind blowing for the US dollar, which is weakening right across the board. European stocks are also unnerved, although sovereign debt markets are holding their poise.
The trading pattern comes as the chances of fiscal stimulus and tax cuts making it out of Donald Trump’s campaign and into law look slimmer after the administration’s inability to enact its signature promise to repeal Obamacare.
The euro is off session highs which took it back to the $1.1530 mark in Asian trade, a level it last touched briefly in May 2016 and has not held consistently since August 2015. As the European trading day starts, it is up 0.3 per cent at $1.1516.
The pound is up 0.3 per cent at $1.3096, taking it back near Friday’s intraday high of $1.3112, a 10-month peak. UK inflation data are due out at 9.30am London time, with price rises expected to stall in June, perhaps giving pause to the Bank of England’s hawks on its finely-balanced Monetary Policy Committee. Headline inflation is expected at 2.9 per cent and core inflation at 2.6 per cent, both unchanged from May’s four-year high.
The yen strengthened past ¥112 to the dollar, for the first time in 11 sessions, before standing 0.4 per cent firmer at ¥112.17.
China’s renminbi reached a fresh eight-month dollar high, hitting Rmb6.7597 in the onshore market.
The dollar index, a trade-weighted measure of the US currency, dropped to a 10-month low at 94.779, down 0.4 per cent from levels late in the New York day.
Andrew Milligan, head of global strategy at Standard Life Investments, says:
Unless the S&P 500 earnings reports gather some momentum, investors will look for assets outside the States, with European positioning ahead of the ECB announcement on Thursday.
Markets can still be driven by political news. The failure by Congress yet again to reform Obamacare pushes back even further the possibility of helpful tax cuts to support the US economy.
In the meantime, European equities are slipping back, with the heavily-weighted oil and banking sectors taking a toll, and the region’s exporters hit by the stronger euro.
The Euro Stoxx 600 is down 0.3 per cent with the Xetra Dax 30 in Frankfurt 0.4 per cent softer. London’s FTSE 100 is down 0.3 per cent.
Firmer local currencies are also being felt on major Asia-Pacific stock markets.
Tokyo’s Topix is down 0.3 per cent. Australia’s S&P/ASX 200 index, is down 1.1 per cent. Hong Kong’s Hang Seng index was off 0.2 per cent.
China’s tech-focused ChiNext index hit a 30-month low as concerns over tighter financial regulations continued to undercut confidence in small-cap stocks.