Friday, 20 January 2017
Asian stocks, dollar drop as Trump caution outweighs China GDP
Caution prevailed in financial markets on Friday ahead of U.S. President-elect Donald Trump's inauguration, even as China's economic growth beat expectations and Federal Reserve Chair Janet Yellen toned down her earlier hawkish policy stance.
European markets were headed for a subdued start amid trepidation over Trump's first speech as president. Financial spreadbetter CMC Markets expected Britain's FTSE 100 to open 0.1 percent higher, and Germany's DAX and France's CAC 40 to start the day little changed.
MSCI's broadest index of Asia-Pacific shares outside Japan retreated 0.2 percent, and looked set to end the week flat.
Japan's Nikkei reversed earlier losses to close 0.3 percent higher, posting a 1.1 percent weekly loss.
China's fourth-quarter gross domestic product growth came in at 6.8 percent, versus forecasts of 6.7 percent, supported by higher government spending and record bank lending.
The economy expanded 6.7 percent in 2016, in line with forecasts.
The data helped lift China's CSI 300 index 0.8 percent, setting it on course for a 1 percent weekly gain.
Despite the headline growth, concerns are growing about whether Beijing can contain the financial risks from an explosive expansion in debt fuelled by years of government stimulus spending.
A cooling housing market and painful structural reforms, as well as pressure on exports if Trump fulfils his protectionist promises, are also risks for China in 2017.
"On the domestic front, China needs to find a balance between chasing growth and deflating asset bubbles," said Zhou Hao, emerging markets economist at Commerzbank in Singapore.
"It makes sense for China to tolerate a growth moderation in the coming year, while leaving more flexibility to structural reforms," he said, adding he expects China to lower its growth target to around 6.5 percent.
The dollar inched down after Federal Reserve Chair Janet Yellen said that gradual monetary adjustments were prudent, although she warned against letting the economy run hot.
Her statement was seen as slightly less aggressive than a Wednesday speech in which she cautioned that waiting too long to raise rates could lead to "too much inflation, financial instability, or both," amid comments by other Fed officials that also favoured faster hikes.
The dollar index, which tracks it against a basket of six major global peers, pulled back 0.2 percent to 100.97 on Friday. On Thursday, it initially surged on upbeat U.S. data pointing to brightening economic prospects, before closing 0.2 percent higher as concern about Trump's policies returned.
The greenback slipped 0.2 percent to 114.64 yen.
U.S. homebuilding rebounded sharply in December amid stronger demand for rental housing, and the number of Americans filing for unemployment benefits fell to near the 43-year low touched in mid-November.
"The dollar could fall if Trump pushes forward his protectionist rhetoric in his inauguration speech," said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi UFJ. "Some investors also expect more details on his policies, so the dollar could also slip if Trump does not mention any specifics."
The 10-year U.S. Treasury yield fell 0.4 percent to 2.4613, after spiking to a 2 1/2 week high of 2.496 on Thursday.
U.S. stocks were also restrained overnight, with the major indexes posting losses of as much as 0.4 percent, and the Dow Jones Industrial Average down for its fourth straight session.
The euro rose on Friday, extending gains following initial losses after European Central Bank chief Mario Draghi played down a recent rise in euro zone inflation, as investors parsed his statement and noted no changes to policy.
The common currency advanced 0.2 percent on Friday to $1.068 .
In commodities, oil rose on expectations of tighter supply and reports of record Chinese demand, but the gains were tempered by concerns about swelling U.S. inventories.
U.S. crude added 0.3 percent to $51.53 per barrel, pulling further away from Wednesday's one-week low. But it remains down 1.6 percent for the week.
Global benchmark Brent advanced 0.3 percent to $54.32, shrinking its weekly loss to 2 percent.
Amid nervousness about Trump's presidency, investors took shelter in gold. Spot gold extended gains 0.2 percent to $1,207.06 an ounce, set for a weekly increase of 0.7 percent, its fourth straight week of gains.
Reference: Nichola Saminather