Oil tumbles as output cut looks elusive; dollar sinks

TOKYO: The dollar and US bond yields fell yesterday as investors reversed a ‘ Trumpflation’ trade that has gripped markets since the US elections, after oil prices slid on fears that producer countries meeting this week could fail to agree an output cut.

Though Brent crude futures last traded at US$ 47.02 per barrel, almost flat on the day, prices had been down by as much as 2.0 per cent in early Asian trade, following on from a 3.6 per cent fall on Friday as doubts arose over whether the Organization of the Petroleum Exporting Countries would reach a deal later this week.

Prospects of reduced upward pressure on inflation from oil prices, prompted investors to temper expectations for rises in US interest rates, bring down treasury yields and the dollar.

That gave some relief to Asian shares, which had underperformed on worries about capital flight to higher-yielding US markets in the weeks since Donald Trump’s Nov 8 election win.

MSCI’s broadest index of AsiaPacific shares outside Japan rose 0.6 per cent, led by gains in Hong Kong and Taiwan.

In contrast, US stock futures slipped 0.2 per cent after their stellar performance this month on hopes President- elect Trump’s policy of fiscal spending, deregulation and protection of domestic industries will boost US inflation and benefit Corporate America.

Japan’s Nikkei average, which had performed even better than Wall Street thanks to the yen’s fall, also lost its lustre, falling 0.3 per cent.

“It will be scary to think markets may fully reverse their moves since the elections, changing their mind that Trump’s policy may not be so good after all,” said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.

Wall Street’s four main indexes all hit record highs last week, a feat last achieved in 1999.

Yet some investors question whether the market may have got carried away with optimism on Trump’s policy, given the uncertainty on the political neophyte’s presidency, including on how closely he can work together with the Congress.

But it was doubts about inflationary expectations, due to languishing oil prices that gave investors a more immediate reason to have second thoughts. — Reuters