Investors turn wary as Brexit and Trump uncertainties grow

Investors turn wary as Brexit and Trump uncertainties grow

Investors sold sterling and stocks yesterday, seeking shelter in gold and the Japanese yen as uncertainty over Britain’s departure from the European Union and the policies of US President-elect Donald Trump curbed appetite for risky assets.

US markets were closed for the Martin Luther King Day holiday, crimping market activity and potentially exacerbating price moves.

The dollar rose, except against the yen, rebounding after suffering its worst week since November last week, when it was hit by a lack of clarity over what Mr Trump, whose inauguration is on Friday, will do once he assumes office.

The price of gold, a frequently sought haven for investors in uncertain times, hit its highest level since November.

Yields on low-risk German government bonds fell, but those on Italian equivalents edged up after rating agency DBRS cut Italy’s credit rating late on Friday, a move that could raise borrowing costs for the country’s banks.

But the eye-catching mover was Britain’s pound, a day before a speech by British Prime Minister Theresa May. Media reported that she would lay out an exit from the EU that would see Britain lose access to the bloc’s single market.

The pound fell as low as $1.1983 in thin early Asian trade, which, barring a sudden “flash crash” in October, was its weakest against the dollar in 32 years.

The fall in sterling, which makes UK exports cheaper, has contributed to an unprecedented 14-day rally in the blue-chip FTSE 100 stock index. The index fell 0.2 per cent yesterday but still outperformed continental Europeanmarkets. The main STOXX 600 index fell 0.8 per cent, as declines in autos and banks offset a rally in eyewear makers Luxottica and Essilor, who agreed a €46 billion merger.

German carmakers BMW, Daimler and VW fell between 1.6 and 1.8 per cent after Trump warned he would impose a 35 per cent border tax on vehicles imported to the US market.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.6 per cent, Japan’s Nikkei lost one per cent as the yen hit exporters.

Sterling last traded at $1.2055, down one per cent on the day.

The euro was up 0.6 per cent at 87.97 pence while the yen was up 0.8 per cent at 137.40 to the pound.

The dollar index, which measures the US currency against six of its peers, rose 0.4 per cent.

The euro fell 0.4 per cent to $1.0602 while the yen, another perceived safe haven investment, rose 0.5 per cent to 113.99 per dollar.

German 10-year bond yields fell 2 basis points to 0.25 per cent.

Italian 10-year yields, by contrast, rose marginally to 1.90 per cent.

Italy’s downgrade will mean Italian banks will have to pay more to borrow money from the European Central Bank when they use the country’s sovereign bonds as collateral. It may also make Italian debt less attractive for foreign buyers.

Oil held steady, though doubts that large oil producers will cut output, as agreed by the Organisation of the Oil Producing Countries and others, put prices under pressure. Brent, the international benchmark, last traded at $55.37 a barrel, down eight cents on the day.

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