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Europe soft open after Asian bourses slide

Thursday 08:40 GMT

Overview

The dollar, Treasury yields and equities are lower — with pharmaceutical groups in the firing line — as traders question the “Trumpflation trade” following the US president-elect’s fractious press conference on Wednesday.

The yen is stronger, signalling waning risk appetite among traders, while gold is back above $1,200, a seven-week high.

Hot topic

Investors are reassessing the implications of a Trump presidency.

Markets have been on a bull run since the real estate mogul was elected president in November. Wall Street’s S&P 500 and London’s FTSE 100 hit record highs in recent days, while bond yields rose and the dollar reached a 14-year peak on hopes Mr Trump’s mooted policies would deliver faster US economic growth.

But after placing big bets on this so called “Trumpflation trade” investors were wary that the president-elect’s first press conference contained no further detail about his proposed fiscal stimulus and infrastructure spending plans.

Indeed, hopes for a lighter regulatory touch also were swiftly called into question when Mr Trump lambasted the pharmaceutical industry. He also reiterated his willingness to impose tariffs on imports and heightened tensions with Mexico by confirming again he would make the southern neighbour pay for a border wall.

Meanwhile those wishing for evidence of a more collegiate administrative approach were disappointed by the president-elect widening the rift with the country’s intelligence agencies.

“President-elect…Trump had a great deal to say during Wednesday’s press conference but for global investors, he underwhelmed with new information regarding his policy for the first 100 days,” said analysts at Citi.

Paul Donovan, chief economist at UBS Wealth Management, said: “Investors have been inclined to downplay the risk of candidate Trump’s trade protectionism being implemented by the new administration. That view may need to be revised in view of the style of the press conference.”

Forex

The dollar index is down 0.7 per cent to 101.06 as Trumpflation trades are pared, with the euro up 0.6 per cent to $1.0643 and the Japanese yen 1.3 per cent stronger at ¥113.85 per buck.

The UK pound, which hit a three-month low of $1.2036 during the previous session, is up 0.7 per cent to $1.2294 as investors move back into the currency after Bank of England governor Mark Carney told members of parliament that Brexit was no longer the single biggest threat to the UK’s financial stability.

The Mexican peso is 0.6 per cent firmer at 21.7283. It hit a record low of 22.0320 on Wednesday after the US president-elect threatened companies, such as carmakers, with a “major border tax” if they moved their manufacturing plants south of the border.

The Turkish lira is also benefiting from the generally softer greenback. After falling to a record intraday low of 3.9407 per buck in the previous session, amid security and economic concerns, it is up 1.2 per cent at 3.8152.

Equities

Stock markets have a softer bias after the Trump presser, with futures suggesting the S&P 500 will shed 8 points to 2,267 when trading gets under way later in New York.

In Europe, the Stoxx 600 is off 0.4 per cent as the drugs sector sheds 1.8 per cent.

London’s FTSE 100, which on Wednesday secured a record 12-day winning streak to close at a new peak, is down 0.3 per cent, though underpinned by a number of well-receive updates from the retail sector.

Weak sterling has been lifting the UK blue-chip barometer of late, so the pound’s rally is causing some profit-taking.

Asian pharma groups were under the cosh as they played catch-up to sector falls in the US and Europe. In Tokyo, Takeda Pharmaceuticals, which has been looking to expand its presence in the US and this week bought US-listed oncology group Ariad Pharmaceuticals for $5.2bn, fell 2.6 per cent.

A stronger yen also hit Japanese exporters, leaving the Topix index off 1 per cent.

Hong Kong’s Hang Seng fell 0.5 per cent, while on the Chinese mainland the Shanghai Composite lost 0.55 per cent and the technology-focused Shenzhen Composite shed 0.9 per cent

Fixed income

The market’s “risk off” tone and reduced bets on accelerating US growth are encouraging buyers of government sovereign debt.

The US 10-year Treasury yield, which four weeks ago rose above 2.6 per cent, is down six basis points to 2.31 per cent.

Equivalent maturity German Bunds are easing 3bp to 0.22 per cent and UK gilts are shedding 4bp to 1.31 per cent.

Commodities

Gold is benefiting from a weaker dollar and falling bond yields, up $14 to $1,206 an ounce and on track for a fourth straight day of gains, its longest winning run this year.

Brent crude oil, the international benchmark, is up 0.5 per cent at $55.38 a barrel, while West Texas Intermediate is 0.1 per cent stronger at $52.32.

Prices jumped by more than 2 per cent on Wednesday despite bearish US inventories data as traders continued to bet that output cuts by big producers can reduce oversupply.

Additional reporting by Peter Wells in Hong Kong

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