Dollar sulks as global central banks turn hawkish, stocks drop
SINGAPORE: The dollar extended its losses on Friday as major central banks signalled that the era of cheap money was coming to an end in a boon to sterling, the euro and Canadian dollar, while Asian shares were hit by dismal performances of European and US markets.
“International markets continued to adjust for a 2018 outlook where other central banks join the Fed in gradually reducing monetary stimulus,” Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in a note.
The dollar index fell 0.1 per cent to 95.565, poised for a 1.8 per cent slide this week, having fallen in all sessions but one. It is down 1.4 per cent for the month, and 4.8 per cent for the quarter.
The dollar fell 0.2 per cent to 111.925 yen, after losing 0.2 per cent on Thursday. It was heading for a 1.2 per cent gain for the month, but is down 4.2 per cent this year.
Bank of England Governor Mark Carney surprised many on Wednesday by conceding a rate hike was likely to be needed as the economy came closer to running at full capacity.
Sterling was 0.1 per cent higher on Friday at $1.3023, adding to Thursday’s 0.6 per cent gain.
Two top policymakers at the Bank of Canada also suggested they might tighten monetary policy there as early as July.
The dollar slipped 0.2 per cent to C$1.2977, extending Thursday’s 0.3 per cent loss.
Despite comments by sources that European Central Bank President Mario Draghi intended to signal tolerance for a period of weaker inflation, not an imminent policy tightening, the euro on Friday revisited the one-year high of $1.1445 hit on Thursday.
The euro slipped almost 0.1 per cent from that level and was fetching $1.14365, retaining most of Thursday’s 0.6 per cent gain.
“The shifting monetary policy trajectories of other central banks is making other currencies more attractive relative to the US dollar,” said Kathy Lien, managing director at BK Asset Management in New York.
In stocks, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8 per cent, set to end the month up 1.7 per cent after hitting a two-year high on Thursday. It is up 5.3 per cent for the quarter and has risen 18.3 per cent this year.
The negative sentiment infected Chinese shares despite surveys showing activity in the country’s manufacturing and services sector accelerated in June from the previous month. Manufacturers appeared to enjoy strong external demand, as new orders and production rose at a solid pace.
The CSI 300 index fell 0.5 per cent, while the Shanghai Composite slid 0.4 per cent.
Hong Kong’s Hang Seng lost 1.1 per cent.
Japan’s Nikkei tumbled 1.1 per cent, shrinking its monthly gain to 1.8 per cent and its quarterly increase to 5.8 per cent.
Australian shares dropped 1.4 per cent, while South Korea’s KOSPI lost 0.4 per cent.
Overnight, the tech-heavy Nasdaq, with its 1.4 per cent loss, led declines on Wall Street. The Nasdaq is poised to post a 0.9 per cent loss for the month, but is still up 14 per cent this year.
The decline in tech stocks overnight was due to a rotation into bank shares, which have lagged this year, after the biggest US banks revealed buyback and dividend plans that beat analysts’ expectations after the Fed approved their capital proposals in its annual stress test program.
The S&P financials index rose as much as 2 per cent overnight, while the S&P technology index fell as much as 2.7 per cent.
European shares also lost about 1.3 per cent as dividend-paying sectors took a hit on prospects for higher interest rates.
In commodities, oil prices continued their recovery this week on a decline in weekly US crude production.
US crude added 0.65 per cent to $45.18 a barrel in its seventh straight session of gains, bringing its weekly increase to 5.05 per cent, and narrowing its monthly and quarterly losses to 6.5 per cent and 10.7 per cent respectively.
Global benchmark Brent gained 0.5 per cent to $47.61, poised to post a 5.4 per cent loss for the month and 9.9 per cent for the quarter.
The dollar’s weakness this year has been a boon for gold, which is up 8.1 per cent in the same period. It was little changed at $1,244.32 an ounce on Friday.
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Via:: Economic Times – Stocks