By James Regan and Stephen Kirkland
(Bloomberg) --Donald Trump’s plans for a U.S. construction boom have set off a chain reaction that’s invigorated commodities prices, hammered bonds, buttressed the dollar and is now ripping into emerging markets.
Copper extended the biggest weekly advance in at least three decades in London. That’s boosting the outlook for inflation, causing the rout in bonds to deepen in Europe after more than $1 trillion was erased from the value of the global debt market. Rising Treasury yields are driving the Bloomberg Dollar Spot Index to the highest since February, leading to the worst three-day selloff in five years for developing-world currencies, which caused central banks to intervene. European stocks pared their best weekly jump since July and S&P 500 Index futures fell.
The dollar’s rally since Trump’s surprise win in Tuesday’s vote is causing turmoil in emerging markets, prompting Malaysia’s central bank to say it may act at times of extreme volatility, while India and Indonesia were said to have supported their currencies on Friday. While metals have rallied on pledges to boost construction of roads, airports and bridges, vows to renegotiate the North Atlantic Treaty Agreement and talk of tariffs on China have weighed on the outlook for developing economies.
“It’s a cascade of events,” said Per Hammarlund, the chief emerging-market strategist at SEB SA in Stockholm. “It’s a big risk-off event for emerging markets. The green shoots, primarily faster growth, that we have seen this year are at risk if Trump tears up NAFTA and slaps punitive tariffs on China. Those policies will cause inflation and U.S. interest rates to rise, which in turn will pull capital out of emerging markets.”
Nickel set for biggest weekly increase since April 2009 Dow Jones Industrial Average reaches record on Thursday Gold heading for worst week in a month Largest increase in 30-year Treasury yields since 2009 Italian bonds are poised for worst three-week selloff since 2011 Emerging-market stocks set for biggest three-day slide since August 2015 Mexico’s peso plunges 12 percent in three daysCommodities
Traders are buying copper like never before in what Citigroup Inc. says may be a premature rally driven partly by Chinese speculators. The metal is poised for a 18 percent gain this week, the biggest advance since records begin in 1986. Prices rose 5.5 percent to $5,908 a metric ton at 8:18 a.m. in New York. Nickel was on track for a weekly gain of 14 percent, the biggest in more than seven years.
Gold fell as the dollar rose amid increasing speculation the U.S. economy will improve and interest rates will increase. Bullion for immediate delivery has fallen 3.6 percent this week to $1,258.64 an ounce, confounding predictions that a Trump presidency would create a powerful rationale for investing in the haven.
Oil was back where it started the week as swings driven by U.S. offset doubts about whether OPEC can finalize the Algiers deal to cut production. West Texas Intermediate dropped 1.3 percent Friday to $44.06 a barrel and Brent lost 1.2 percent to $45.30.
Bonds
European government bonds extended their selloff Friday. Benchmark German 10-year bunds declined for a fifth consecutive day, pushing the yield to the highest since February. Italy’s 10-year bond yield climbed above 2 percent for the first time since September 2015.
Yields on U.S. 30-year bonds, which are more sensitive than shorter maturities to the outlook for inflation, have jumped almost 40 basis points since last Friday and a $15 billion auction of the tenor on Thursday showed waning appetite for the securities. The Bloomberg Barclays U.S. Treasury Index slid 1.85 percent this week, its biggest loss since 2009. Treasury markets are closed today.
The capitalization of a global bond market index slid by $450 billion Thursday, a fourth day of declines that pushed the week’s total above $1 trillion for only the second time in two decades, Bank of America Merrill Lynch data show. Global stocks gained $1.3 trillion in the same period.
Currencies
The MSCI Emerging Markets Currency Index fell 0.7 percent and is down 2.4 percent in three days. Mexico’s peso has led declines, sinking 12 percent since Tuesday, followed by a 7 percent drop in South Africa’s rand and a 6.8 percent slide in Brazil’s real.
In Asia, Indonesia’s rupiah and South Korea’s won sank to their weakest levels in more than four months and Malaysia’s ringgit dropped to the lowest level since January.
“Rising U.S. yields will cause volatility in capital flows into emerging markets, and with the Fed still likely to hike rates in December, the risk is for further outflows,” said Khoon Goh, head of Asian research at Australia & New Zealand Banking Group Ltd. in Singapore, referring the Federal Reserve. Trump’s plan to revisit trade agreements “is also a factor,” he said.
Latin American currencies have tumbled on concern Trump’s administration could usher in a host of protectionist measures. A trade war would be a blow to economies such as Mexico, which gets 80 percent of its overseas sales from the U.S.
Trump’s victory produced an unlikely winner in the pound, which has climbed against all 31 of its major peers this week. The euro, meanwhile, has plunged, falling 2.4 percent against the dollar in its worst week in a year.
The Bloomberg Dollar Spot Index climbed 2.7 percent in the period, the best performance since September 2011.
Stocks
The MSCI Emerging Markets Index dropped 2.3 percent and is down 5.2 percent in three days. By contrast shares in Europe are poised for their best week since July and U.S. stocks advanced for a fourth day on Thursday in the longest run of gains in four months.
“There’s been a big rotation out of emerging markets into U.S. dollar assets,” said Jeffrey Halley, a market strategist at Oanda Asia Pacific Pte in Singapore. “An emerging market is a market you can’t emerge from in an emergency. It’s one of the best lessons I’ve ever learnt in 30 years in the market. When everybody runs for the door at the same time, the door’s very small.”
On Friday, the Stoxx Europe 600 Index was little changed as metal producers pulled back from the highest level since June 2015. The Stoxx 600 mining gauge’s relative strength index yesterday signaled the shares were the most overbought in 10 years.
S&P 500 Index futures retreated 0.3 percent after U.S. equities capped their longest run of gains since July. Contracts on the Dow Jones Industrial Average were little changed after the gauge closed at a record.
Walt Disney Co. climbed 1.8 percent in premarket New York trading after predicting renewed growth next year and beyond after a rare stumble in the fiscal fourth quarter. Nvidia Corp. surged 13 percent after the biggest maker of graphics chips used by computer gamers forecast quarterly sales that signaled continued strong demand for its signature products and gains in new markets such as data centers.
Chinese shares in Shanghai entered a bull market, with this quarter’s rally led by commodity producers and construction companies as the government boosts spending to bolster growth. Friday is Singles Day, the Chinese e-commerce event that has morphed into the biggest online shopping event in the world.
"Liquidity is abundant and property curbs will prompt more money to flow into stocks, which look undervalued relative to homes in large cities," said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management.