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Dollar drops on trade war risks as stocks in Asia plummet

Dollar drops on trade war risks as stocks in Asia plummet
Dollar drops on trade war risks as stocks in Asia plummet

U.S. Stock Futures fell on Monday, after President Donald Trump threatened to slap additional tariffs on 8 European nations until Greenland was allowed by the U.S. The?dollar dropped against the safe haven currencies of the Swiss franc and yen.

Concerns about the impact of a full-blown trade war between Europe and the U.S. on global growth and demand led to a gold and silver price jump.

The holiday on the U.S. equity markets and bond market led to thin trading, which likely contributed to a drop of 0.7% in S&P futures and 1.0% in Nasdaq.

EUROSTOXX Futures and DAX Futures both dropped 1.1% on European markets. Japan's Nikkei fell 1.0% and MSCI's broadest Asia-Pacific share index outside Japan dropped 0.1%.

Trump has said that if a deal cannot be reached, he will impose an additional 10% on imports of goods from Denmark and Norway. He also plans to increase the amount by 25% if a deal is not reached.

France suggested a series of economic countermeasures that had never been tested before to respond to the Greenland?tariff threat.

Early August, the EU suspended its tariffs on imports worth 93 billion euro ($108 billion). It also took measures under a new Anti-Coercion instrument that could affect U.S. investments or services.

Analysts at Deutsche Bank pointed out that European countries own $8 trillion in U.S. bonds and equities - almost twice the amount of the rest of world. They may consider bringing back some of this money.

George Saravelos is the global head of FX Research at Deutsche. He said: "With U.S. net international investment positions at extreme negative extremes,?the mutual dependence of European and U.S. financial market has never been greater."

It is the weaponization of capital, rather than trade flows, that would be by far the most disruptive for markets.

There will also be a few tense days in Davos, as world leaders gather for the World Economic Forum. This includes a large U.S. delegation led by Trump.

DOLLAR NO SAFE HAVEN China will report on Monday that its economy grew by 4.4% year-on-year in the quarter ending December, down from 4.8% in the previous quarter.

Bank of Japan will meet on Friday. While no rate hikes are expected, policymakers may signal a tightening of monetary policy as early as April.

The domestic political situation is also likely to be complicated by the fact that Prime Minister Takaichi, who is Japanese, is expected to dissolve parliament soon to allow an election to take place in February.

Investors will be able to refine their expectations when it comes to the Federal Reserve's next rate cut based on delayed data for core U.S. inflation and consumption.

Markets have largely given up on a easing of interest rates before June due to a string of positive economic news. April is currently priced at 65%, indicating no change.

The earnings season continues, as more companies join the banks, such as?Netflix', Johnson & Johnson', General Electric, and Intel.

The euro rose 0.1% on the currency markets to $1.1613 while sterling clawed back to $1.3387.

The dollar dropped 0.2% against the Swiss Franc to 0.7995 francs and 0.3% against the yen, which fell 0.3% to 157.70 yen.

The 10-year futures market firmed up 3 ticks as investors sought safety.

Gold also gained 1.5%, to $4,664 per ounce.

Prices of oil have eased. Oil prices eased.

Brent crude oil fell by 0.5%, to $63.84 per barrel. U.S. crude dropped 0.4%, to $59.18 a barrel. ($1 = 0.8611 euro) (Reporting and editing by Shri Navaratnam, Muralikumar Aantharaman).

(source: Reuters)