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Havens Slip in Tussle of Politics Versus Inflation: Markets Wrap

The rally in haven assets paused, with the yen and precious metals declining as investors weighed the prospect of rising inflation against political uncertainty in the run-up to Donald Trump’s inauguration as president. Emerging-market stocks gained.

Japan’s currency and gold retreated for the first time in eight days. Bonds edged lower before Thursday’s ECB meeting, where few surprises are expected. Oil reversed course after earlier gains, slipping below $52 a barrel. The MSCI Emerging Markets Index headed for a two-month high while European equity markets were mixed.

While strengthening inflation in the U.K. and eurozone -- and steady figures expected from the U.S. later -- should underpin confidence in a growth rebound, concerns about the policies of Trump and looming elections in Germany and France are among issues clouding the outlook. That’s taken the edge off the so-called reflation trade, with strategists starting to rethink bets on returning inflation and a stronger dollar.

“We need to see what the next steps from central banks will be, what policy action will follow the inauguration,” said Peter Schaffrik, the head of European rates strategy at Royal Bank of Canada. “We’ve had a lot of news flow. Markets need to see some concrete action.”

Read our Markets Live blog here.

Here are the main movers for the key asset classes:

Currencies

  • The Bloomberg Dollar Spot Index added 0.4 percent at 11 a.m. London time, after retreating 1.3 percent on Tuesday to the lowest in a month. 
  • The pound dropped 0.8 percent to $1.2311 after surging 3.1 percent on Tuesday. The euro slipped 0.3 percent to $1.0684 while the Russian ruble gained 0.3 percent.
  • The yen weakened 0.7 percent to 113.35 per dollar, after soaring 3.9 percent over the previous seven days.

Stocks

  • The Stoxx Europe 600 Index fell 0.2 percent. Pearson Plc plunged 27 percent to the lowest since 2009 after cutting its profit forecast for this year.
  • Futures on the S&P 500 added 0.1 percent. The underlying gauge lost 0.3 percent on Tuesday. 
  • The MSCI Emerging Markets Index rose 0.3 percent, poised for the highest closing level since Nov. 8. 

Commodities

  • The Bloomberg Commodity Index halted a five-day rally, retreating 0.4 percent.
  • West Texas Intermediate crude slumped 1.5 percent to $51.67 a barrel, the most in a week.
  • Gold lost 0.3 percent, snapping a seven-day winning streak that was the longest since November.
  • Iron ore futures slid 0.6 percent on the Dalian Commodities Exchange, also ending a seven-day stretch of gains
  • Zinc led industrial metals higher in London, climbing as much as 1.7 percent for the first daily advance this week. S&P Global raised 2017 price assumptions for zinc, copper and iron ore.

Bonds

  • Yields on 10-year Treasuries climbed three basis points to 2.36 percent, after falling seven basis points on Tuesday.
  • Gilts yields rose, with the 10-year benchmark trading one basis point higher at 1.32 percent.
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