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Global Markets Fall on Doubts About Trump Agenda -- Update

27 Mar 2017 4:46 am
By Kenan Machado 

Global markets fell as investors continued to worry about the Trump administration's ability to push through the policy initiatives whose prospects had helped propel stocks the past few months.

The scrapping Friday of an already-delayed vote on a health-care plan--after Republicans in the House of Representatives couldn't muster enough support--has investors now fretting about other efforts, including a tax overhaul and infrastructure spending.

"It's time to take caution on the reflation trade," said Hao Hong, head of research at Bocom International. "The [health-care] impasse puts Trump's ability to execute his election promises in question, on which the markets globally have been running very hard."

Japan's Nikkei Stock Average dropped 1.6% to its lowest levels since early February, while the dollar fell nearly 1% against the yen, hitting four-month lows. The dollar was recently trading at around Yen110.26.

Infrastructure stocks, which rose in anticipation of a Trump-driven increase in spending, were among Monday's largest decliners in Japan. Steel producer JFE Holdings and construction-machinery maker Kubota fell about 3%. Financial stocks suffered similar losses as bond yields fell. The yield on the benchmark U.S. 10-year Treasury note was at 2.36% in afternoon Asian action, down from 2.4% late Friday.

The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, fell 0.5% to 89.63, within a whisker of its level on Nov. 9, the day after the U.S. election, when its dizzying rally began.

Oil, which had started the day higher, turned modestly lower by midday despite the dollar's decline as investors shed a host of so-called risk assets.

Commodity weakness, especially among metals firms, helped push Australia's S&P/ASX 200 lower, though after being down as much as 1% in the morning it was recently off just 0.2%. Still, BHP Billiton and Fortescue Metals dropped nearly 3%.

Most other stock markets in Asia were also logging modest declines, with indexes in Hong Kong, Shenzhen, Taiwan and India all down about 0.3%. Korea's Kospi, which has been a regional star of late, was off 0.5%.

Some believe that if a wider stock selloff occurs in the U.S.--major indexes there finished Friday about 2% below their recent record highs--a redistribution of capital could follow. That could benefit Asian equities, where earnings growth has been robust and on the upswing.

Diversification would be "pretty good news for global markets because it has been such a one-way ride for the U.S.," said Sean Darby, chief global equity strategist at Jefferies in Hong Kong. "I think the markets (in the region) will see through this."

But there is also the risk that confidence will wane among investors and businesses alike. That would likely hurt Asia, where many economies depend on global growth's gaining steam.

"With fiscal policy uncertainty rising again, the risk is that business and consumer sentiment reverse recent gains--which would have growth consequences," said analysts at ANZ Research. "For markets, that doesn't sound like an ideal situation."

Kosaku Narioka contributed to this article.

Write to Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

March 27, 2017 00:46 ET (04:46 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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