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Stock markets mixed as dollar gains

Thursday 08:30 GMT. European equity markets are trading cautiously in the wake of solid US data that bolstered the case for a near-term rate rise from the Federal Reserve and which has triggered another bout of dollar strength.

The rampant buck is battering many emerging market currencies and leaves gold down $5 to $1,182.5 an ounce, the metal’s cheapest price in nine months.

The pan-European Stoxx 600 index is up 0.2 per cent as energy stocks are supported by firmer oil prices. Brent crude is adding 0.1 per cent to $49.01 a barrel as dealers wait to see if Opec can ratify a proposed production cut deal at its meeting in Vienna on November 30

The UK’s FTSE 100 is off 0.1 per cent, underpinned by gains for miners as copper rises 2.3 per cent to $6,000 a tonne.

Trading is muted because some dealers may be reluctant to make bold bets without a lead from the US markets, which are closed for the Thanksgiving holiday. Wall Street will open for just half a day on Friday, but it will start the session with the S&P 500, the equity benchmark, at a record high of 2,204.7.

US stocks have powered ahead since Donald Trump was elected president earlier this month, with the Republican’s pledge to unleash a $1tn economic stimulus package of tax cuts and infrastructure investments boosting investor bullishness.

But Mr Trump’s proposals are also expected to build inflationary pressures, because they may be applied when the economy already appears in decent health. For example, US durable goods orders for October, released this week, rose a much sharper than forecast 4.8 per cent.

The prospect of higher inflation is lifting the dollar and hitting government bond prices on expectations the Federal Reserve may then have to tighten monetary policy faster than previously expected.

The dollar index, which tracks the buck against a basket of its peers, is up 0.2 per cent to 101.91, a near 14-year high.

US 10-year Treasury yields,which move inversely to the bond price, settled overnight at 2.36 per cent, having at one point on Wednesday touched 2.42 per cent, the highest since July 2015. US 2-year yields closed at a a six-year high of 1.13 per cent as the probability of a Fed rate rise next month sits at 100 per cent.

Most Asian EM currencies are struggling versus the greenback, as traders bet that higher US rates may draw capital away.

Malaysia’s ringgit is off 0.4 per cent at 4.4560 ringgit per dollar, its lowest since the Asian financial crisis in early 1998. Indonesia’s rupiah, the Thai baht and the Philippine peso also came under pressure, with the latter at one point trading above 50 pesos to the US dollar for the first time since November 2008.

China’s renminbi weakened to more than Rmb6.9 per dollar, marking a more than 10 per cent decline since the currency’s one-off devaluation in August last year.

The greenback also is up 0.7 per cent to ¥113.24, leaving the yen at its weakest since March, a decline that helped lift the exporter-sensitive Nikkei 225 stock average on Thursday by 0.9 per cent.

Other action in the region was more muted. Australia’s S&P/ASX 200 surrendered early gains to be flat, while Hong Kong’s Hang Seng was down 0.3 per cent. China’s Shanghai Composite was up 0.1 per cent and the technology-focused Shenzhen Composite lost 0.2 per cent.

With the US bond market closed, the benchmark German Bund is in greater focus, and its yield is slipping 4 basis points to 0.24 per cent.

Additional reporting by Peter Wells in Hong Kong

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