Dollar extends gains, bitcoin soars but stocks lose momentum

Trump trade still powering the markets

Speculation about the expected impact of Donald Trump’s policies continues to dominate the market theme, as investors await details about who will be in Trump’s cabinet. The US dollar advanced to four-month highs against a basket of currencies.

But whereas the dollar’s initial boost was driven by expectations that Trump’s election pledges would be inflationary, the latest leg of the rally is driven by weakness in the greenback’s rivals amid fears of renewed trade frictions with the US.

Euro and pound losses deepen

The euro fell to a near seven-month low of $1.0621 on Tuesday as the European Union readies its response to a possible hike in tariffs by the incoming Trump administration on goods such as cars and steel. Political uncertainty in Germany is adding to the euro’s woes following the collapse of the country’s coalition government and the likelihood of a snap election.

The pound, meanwhile, approached the $1.2800 mark after the UK’s unemployment rate jumped from 4.0% to 4.3% in the three months to September.

China and tariffs weigh on markets

The Japanese yen also remained on the backfoot while the Australian and New Zealand dollars slipped on yet another underwhelming stimulus announcement by the Chinese government. China is planning further tax breaks for home buyers, just days after announcing a 6 trillion-yuan debt swap plan to help local governments.

Whilst all these measures from Beijing are welcome, investors are concerned that none of them are targeted at helping consumers directly, hence the disappointment. The absence of a massive stimulus package combined with jitters about Trump 2.0 put a dampener on equity markets globally.

A tale of two contrasts

A selloff in chip stocks is adding to the negative sentiment today after Taiwan Semiconductors was ordered by the US to halt shipments to China, sending its shares down by more than 3%.

Global equities have not been able to join in the post-election rally on Wall Street as investors snap up stocks that stand to benefit from Trump’s return to the White House. One of the biggest beneficiaries of the Trump trade has been Tesla, which has surged by 39% over the past week. Investors see Elon Musk’s close relationship with the president-elect paying off for Tesla shareholders.

The S&P 500 closed above the 6,000 level yesterday for the first time, but Wall Street’s rally also seems to be losing steam, with US futures slipping into the red today.

Bitcoin shines, gold sags

Bitcoin’s astronomical rise is showing no signs of abating as the world’s most popular crypto soared to a new all-time high of $89,983 earlier today. Investors are hoping Trump’s pro-crypto stance will usher in a new era for the crypto industry.

However, gold has had little to cheer since Trump’s victory. The precious metal has slid by about 5.7% since the election, mainly on the back of the stronger dollar. But expectations that Trump could put a quick end to the conflicts in the Middle East and Ukraine could also be dragging gold lower.  

Reports suggest Trump will appoint known China hawks Marco Rubio and Mike Waltz as secretary of state and national security advisor, respectively. But it’s yet unclear how they will shape America’s policy on the regional wars.

Aside from Trump’s picks, investors are also awaiting Wednesday’s CPI report out of the US, as well as a speech by Fed Chair Powell on Thursday.