Global investors sold the dollar and sought government bonds and gold on Thursday in the wake of Donald Trump’s pre-inauguration press conference, revealing the first sign of buyers remorse for a reflation rally that has dominated global markets since early November.
Mr Trump’s press conference, his first as president-elect, was held in New York’s Trump Tower on Wednesday and was dominated by his ties to Russia, his views on the intelligence community and the future of his business.
His surprise win over Hillary Clinton produced one of the best post-election rallies in history. Plans to cut taxes, ease regulation and deliver infrastructure spending invigorated an ageing bull market and sent stock indices to fresh highs.
However, negative reaction on Wall Street in the hours after the president-elect’s tumultuous briefing with the media on Wednesday dictated sentiment in global share markets.
On Thursday, Europe’s Stoxx 600 and the UK FTSE 100 weakened, led by pharmaceutical stocks. The sector felt the heat from Mr Trump saying they were “getting away with murder” on product pricing. The US is a key customer for the pharmaceuticals industry through its health insurance programmes for the elderly and the poor, called Medicare and Medicaid.
The Nasdaq biotechnology index, closed down 3 per cent on Wednesday, suffering its first daily drop this year, and further uncertainty beckons for the sector.
“What is the future of healthcare?” asks JJ Kinahan, chief market strategist at TD Ameritrade. “That is the question everyone is asking,” adding that insurance providers were probably going to be one of the more volatile areas as information emerged about how Mr Trump wanted to rework healthcare in the US.
Weaker equity index futures indicated a lower open for Wall Street on Thursday, while the US dollar remained on the defensive and Treasury prices were firmer at midday in London.
The index that measures the dollar against its major peers fell a further 0.6 per cent to mid-December levels, taking its post-conference decline to 1.7 per cent.
The yen was at one stage more than 1 per cent higher against the dollar on Thursday at ¥113.73, weighing on Japanese share prices, while the Mexican peso, a bellwether for Trump protectionism risk, was 0.9 per cent stronger.
The peso had been pushed to a new low of 22.00 pesos during the press conference as the president-elect talked about bringing car jobs back to the US and his determination to build a wall along the US-Mexico border to halt illegal immigration.
Kit Juckes, macro strategist at Société Générale, says dollar bulls were being tested.
” . . . in politically driven markets, the combination of an erratic PEOTUS and a market which leaps to conclusions and heads off down culs-de-sac with manic enthusiasm, is a recipe for mayhem and anarchy,” he said.
Gold prices rose to a seven-week high of $1,205.5 a troy ounce on Thursday morning, benefiting from growing uncertainty about Trump’s policies and a weaker US dollar.
“If the markets believed that Trump was going to talk up the economy, announce all sorts of fiscal stimulus and generally be bullish, they were sadly mistaken,” says David Govett, head of precious metals at broker Marex Spectron.
“I have to say that anyone who thinks this presidency is going to be all sweetness and light really needs to take a harder look at the man himself.”
The market’s tilt to risk-off sentiment lowered US 10-year Treasury yields by 5 basis points, their lowest level since November, a trend repeated in German, French and UK government bonds.
“The relative lack of detail on potential economic policies from the incoming president seemed to be a disappointment for markets which have moved to price in some fiscal stimulus,” says Peter Schaffrik at RBC Capital Market.
Traders and investors point to Mr Trump’s inauguration on January 20 as the tipping point for investors.
“After the inauguration the market will start to expect that and if it doesn’t come forth we may start to see the market show some signs of uncertainty,” says Randy Frederick at Charles Schwab.
While there was a reference to “a very large border tax” to deter US companies moving plants outside the country, issues such as infrastructure spending and tax reform, which have driven the dollar rally since his election victory, were largely absent.
Steven Englander, head of G10 foreign exchange research at Citigroup, said it was a stretch to expect Mr Trump to reveal policy initiatives. “Mention of border charges got the market excited for a bit. Reference to the border adjustment tax would have been a big deal but he didn’t go that far, so the dollar netted out to a tepid gain,” he says.
In contrast, Simon Derrick of BNY Mellon says that several mentions about China, Mexico and Japan in the context of trade policy were nods to the difficulties of the US having a strong dollar. “I thought it sounded dollar-bearish at the margins.”
Reporting by Nicole Bullock, Joe Rennison and Adam Samson in New York, and Roger Blitz and Michael Mackenzie and Henry Sanderson in London