"King dollar" benefits from European risks and growth fears

LONDON (Reuters) – The dollar hit a 17-month high on Monday against a basket of major currencies, as investors seek a highly liquid and high-yielding currency in a context of concern for global growth. growing political risks in Italy and Great Britain.

A 2% jump in the price of oil had initially supported European equities, but gains were quickly shattered as fears grew for Italian lender Carige, whose shares had been suspended after reports that 39, a capital hole.

While Shanghai had been released one percent by the promise of regulators to simplify stock repurchases .SSEC, the MSCI world stock index was down 0.3% .MIWD00000PUS and the Asian markets generally weakened after the weak Wall Street closing on Friday.

Investors are worried about signs of slower growth in China, where e-commerce giant Alibaba (BABA.N) recorded the lowest annual growth in sales during its online shopping for Singles Day.

Many also believe that US President Donald Trump could put more pressure on trade, further harming the Chinese economy.

All this, combined with European political risks, conspired to push the dollar higher by 0.6% against a basket of .DXY currencies. The pound sterling lost nearly 1% GBP = D3 while the euro, which accounts for more than 50% of the dollar index, lost 0.7% to its lowest level since July 2017 EUR = EBS.

"The US dollar has returned," said Valentin Marinov, head of the G10 foreign exchange strategy at Credit Agricole, adding that investors had retreated into the dollar after the US Federal Reserve meeting the week last confirming a tightening of rates.

"The euro and the pound are both affected by political risk and this worsens the underperformance against the dollar," Marinov said.

In Britain, it is unlikely that the government will reach a Brexit deal satisfying both the European Union and ruling party members, and Prime Minister Theresa May has been forced to agree on the Brexit deal satisfying both the European Union and ruling party members, and Prime Minister Theresa May has been forced to go to court. abandon his draft cabinet meeting to approve an agreement, the independent reported.

The opposition Labor party has said that if the May Brexit deal is rejected by parliament, it will press for national elections and possibly another referendum.

Analysts at Deutsche Bank have suggested to their clients: "not enough risk is taken into account in the pound sterling, given the upcoming parliamentary problems".

For the euro, Italy was at the center of concerns. Rome was to submit a revised budget to the EU on Tuesday, although it is refusing to reduce the projected budget deficit, paving the way for a collision with Brussels.

Markets have also been frightened by reports that Banca Carige (CRGI.MI) would need about 400 million euros (451 million dollars) to fill a hole in its capital and the deposit protection fund of Italy could fill only a part of it.

This fears a banking crisis in the third economy of the euro area, which would weaken Italian equities and maintain the yield of Italian bonds on Germany – the risk premium related to Italian assets – around the psychologically key bar of 300 basis points DE10IT10 = RR.

Bernd Berg, global macro strategist at Woodman Asset Management, predicted that the euro would fall below the current $ 1.12, from $ 1.12. "

All this was good news for dollar bulls, which benefited from safe haven flows. Against the Japanese yen JPY = the dollar gained 0.3%, touching its lowest since October 4, while it also rose by 0.4% to the Swiss franc CHF =.

US equities should open flat during a potentially thin session on Veterans' Day as Treasury bond markets are closed. The S & P500, Dow Jones and Nasdaq futures were stable or even slightly firmer after the crash of ESc1 on Friday.

The other big move concerns commodities. The Saudi energy minister has eased its pressure on oil prices, saying on Sunday that Riyadh could cut its world market supply by 500,000 barrels a day in December, a worldwide reduction of around 0 percent. , 5%.

That rocked Brent crude LCoC1 by more than 2.07%, peaking at $ 71.88 a barrel.

However, the reduction in supply could prove to be a temporary solution to lower prices due to the slowdown in global growth. Two of the world's largest economies, Germany and Japan, are expected to experience a contraction in output in the coming days.

"Supply surprises seem to be the main culprit, but worries about slowing global demand could also infiltrate markets and weigh on risk appetite," he said. said analysts ANZ.